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Warning commercial investments could 'end in tears'

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Finance experts have raised concerns that some councils are not getting good enough advice before purchasing commercial properties as investments.

The Times reported on Monday how councils had paid £2.7bn for commercial properties since 2015, up from £500m over the previous three years.

The topic was a recurring theme at the Chartered Institute of Public Finance & Accountancy’s annual conference in Manchester yesterday.

LGC reported yesterday how Cipfa’s new president Andrew Burns used a part of his speech to warn councils they need to make sure due diligence in relation to commercial investments is “thorough”.

In a workshop on resilience, risk, and resourcefulness Pete Moore, president of the Society of County Treasurers, said the issue was “one to watch out for”.

Mr Moore, who is also executive director of finance and public protection at Lincolnshire CC, said: “The issue for me is about sensible risk. Does an investment strategy around property support your key service drivers? There is nothing wrong with economic development and nothing wrong with multi-use assets but are you putting your authority at undue risk by, in racing terms, putting it on the outsider rather than the favourite.”

Sean Nolan, director of local government at Cipfa, said councils had a “responsibility” to make sure their investments were proportional.

“The public need to feel you are acting proportionately and relative to the size of your budget and debt,” he said.

In order to “make sure sections at the margins don’t affect this for everybody”, Mr Nolan said Cipfa would make best practice “explicit” in its prudential code for councils.

“Best practice has got to become common practice, particularly when it comes to property for yield purposes,” he said. “You have got to make sure you get proper expert advice.”

In a separate workshop on commercial risk, Mike Britch, group managing director of Norse group, a company set up by Norfolk CC, said: “I have got a feeling it will end in tears at some point. It can get out of hand quite quickly and I am not convinced that some of the decision making has been made with the best advice possible.”

While he is “really supportive” of councils buying properties “in their own area for economic regeneration purposes”, he expressed concern the government “will step in and stop it” if local authorities are seen to be “distorting” the commercial market too much.

Helen Dobby, group manager for commercial services at South Hams DC and West Devon BC, said her councils were taking “a measured approach to what commercial properties we’re looking at” and warned against “putting all of your eggs in one basket”.

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