Property Investment FAQs

How can the Council invest in properties? I thought councils were short of cash. 

The Council did make a number of investment asset acquisitions up until summer 2018 as part of a Capital Strategy to generate sufficient long-term income to offset the impact of disappearance of Government grants. Since then the Council have focused on delivering in-Borough housing and regeneration and the Council is not now making acquisitions for income generating purposes.

Yes, councils are short of cash as government funding has been removed in recent years. The Council started its investment policy to help make up this shortfall and avoid cutting services for residents and to help it to be able to generate affordable and keyworker rental housing across the Borough which meets the needs of residents.

Our investment programme benefitted from low-cost fixed interest rates (meaning financing costs have not risen on these assets, whereas interest rates more generally have risen recently) via direct government finance in order to buy high quality investment assets which will generate a long term income stream. The income generated is significantly greater than the financing costs and we are using the majority of the income to help maintain Council services.

What degree of similarity has Spelthorne got with Woking?

The financial situation is significantly different between Spelthorne Borough Council and Woking Borough Council.

Despite the long-term impacts of the pandemic and other external factors such as the war in Ukraine and the cost-of living crisis, Spelthorne Borough Council has maintained its strong and robust financial position. 

Spelthorne has taken steps to ensure that the commercial property programme is sustainable, and our investment model is very different to Woking. Unlike other councils, we have always taken a cautious approach, paying down debt on a year-by-year basis (like a mortgage). We save up funds over a long-term time frame and have set aside £33.4m (called a Sinking Fund) to cover potential dips in income. Spelthorne Council has the highest ratio of usable reserves to net revenue budget of any district or borough council in the country.

You can view our Assets Dashboard for 2023/24 at www.spelthorne.gov.uk/business-services/commercial-land-property-and-infrastructure/commercial-assets

Our priority remains delivering homes for residents, despite the challenges such as construction inflation and higher interest rates and we are working in partnership with Homes England to secure grants so we can deliver a housing programme for residents that is financially viable.

From acquisition, our investments have made a healthy financial return, generating circa £50m per annum and supporting year on year £10m of discretionary services the Council provides.

Spelthorne Borough Council has never asked the Government for any emergency assistance.

Is the Council risking council taxpayer cash on commercial properties? 

No. The Council was not risking council taxpayers' cash to buy commercial properties; the low-cost government funding for this strategy came from the financial markets and the income generated from rent received is sufficiently greater than loan repayment costs as outlined above meaning the borrowing costs are met from rental income and not council tax.

The Council has also been very focused on identifying and managing risk. It has only acquired high quality assets after extensive due diligence both on the assets and the tenants. The Council's assets team proactively engaged with tenants during the COVID-19 pandemic to ensure tenants continued to pay rent. The Council has modelled the future risk of there being dips in rental income when existing leases have break clauses exercised or end potentially resulting in dips of income when space becomes vacant and then rent-free incentives need to be offered. The Council is setting aside sufficient funds in its sinking funds reserves (as at March 2025 £33.4m) to ensure that it can cover such dips in income without any impact on the Council's budget or Council's services. The Council has an Asset Management strategy that sets out how it proactively manages all its assets to ensure they continue to perform well and all risk is appropriately managed.

Why has the Council invested in areas outside Spelthorne? Shouldn't we be putting money into our own area? 

Historically, there were very limited opportunities to purchase assets in Spelthorne which meet our "best-in-class" criteria. Where in the past we invested beyond our boundaries, we only did so in the Heathrow Economic Area, the area local to Spelthorne which drives its economic prosperity and where many of our residents work, to ensure we could purchase those best-in-class assets which would provide a sustainable and high level of income. The furthest distance any investment has been from the Borough is 30 miles.

The Council is actively investing money within the Borough. We have a range of projects delivered or planned and underway which are delivering housing across the Borough (in 2021-22 one 25 affordable rental scheme; one 55 unit mixed affordable, keyworker and private rental scheme, a single person homeless hostel and a 20 unit family emergency accommodation scheme were all delivered) and regenerating Staines-upon-Thames town centre and in Ashford. A number of schemes are in the pipeline across the Borough. We have also invested into leisure provision, investing millions of pounds into a new state of the art 'green' leisure centre in Staines.

Doesn't the government have guidelines in place to stop councils doing this? 

The government has guidance Councils are not allowed to borrow to directly fund services. Indirectly, we can borrow money which when invested yields a surplus which goes into protecting services and building houses. N council borrowing - the Council abides by this at all times and we have taken legal advice to ensure that we stay within the law. 

The Council has received a Public Interest Report - is not what it is doing illegal?

The Council's external auditor KPMG issued in 2022 a Public Interest Report (PIR)in which they set out the view of their legal adviser that the Council had in the period 2016-18 acted beyond its legal powers in acquiring investments assets. The Council at the time obtained its own legal advice which indicated that the Council was within its powers. So there is a difference of legal interpretations which the Auditors have declined to test in Court. The PIR did make some broader points about approach to managing and benchmarking the investment portfolio which the Council is addressing in an Action Plan to be approved by Councillors.

Aren't quite a few councils with commercial investments getting into financial difficulty? Is Spelthorne at risk of issuing a S114

Spelthorne's investment model is very different to other councils which have undertaken significant investments and, in some cases, got into financial difficulty. In particular, the Council models future liabilities 50 years ahead and ensures that each year it sets aside part of the rental income to build up sinking funds reserves to cover future dips in rental income. The Council's rent collection record during the economic downturn caused by the pandemic is a testament to the quality of the Council's assets, the financial health of its tenants and the proactive approach to engaging with its tenants. Having said that there has been some churn of tenants and temporarily the void rate across the portfolio rose above 10% but from July this will start to drop back down.

As a Council with relatively high debt levels the Council has constructively engaged with the Department for Levelling Up, Housing and Communities (DLUHC) to explain its approach to risk mitigation with respect to its investment assets.

The valuations of the investment assets held by the Council have fallen significantly - does this mean the Council is in financial trouble?     

No, property values have fallen generally. This is the same as the value of someone's house reducing in price, so long as they can continue meeting mortgage payments, the value of the house only becomes a concern if the homeowner wishes to sell. In the economic context of the COVID-19 pandemic and cost of living crisis, valuers have taken a more cautious approach to asset valuations. It is true that on the Balance Sheet the values have fallen over the last three years. However, the Council is holding the assets on a long-term basis for their cash income streams, what matters is the sustainability of those income streams - currently net of financing and management costs delivering £10.8m per annum to support services.

Asset valuation movements are accounting movements which do not impact on the Revenue Budget bottom line. However, what is important is the assets have continued to provide the same level of income.

Why can't the money for investment properties be used instead for services for residents?

Councils are not allowed to borrow to directly fund services. Indirectly, we can borrow money which when invested yields a surplus which goes into protecting services and building houses. 

Why can't the money be used to build council houses? 

An element of the financial headroom created by the investment assets is being used to provide more affordable and keyworker housing, with a number of schemes under development. We are buying sites (with Government grant assistance) within the Borough for housing which will give us the income to be able to develop these sites and cover some of the upfront costs of planning, procurement and construction.

Why can't the money be used to repair potholes?

Spelthorne Borough Council is not responsible for highways; that is the job of Surrey County Council. 

What sort of assets is the Council buying?

The Council strategy (ceased in 2018) was to buy best-in-class investments in sought-after locations with excellent transport links and blue-chip tenants. Since 2018 the Council has purchased on buying sites within the Borough for housing which meets the needs of residents or for regeneration purposes. 

Why does the Council have £1bn of debt if its annual budget is around £22m? 

The Council has this amount of debt because it has purchased assets of equivalent value. We will be steadily paying off that debt over the loan periods. The assets generate an income stream which goes into the annual budget. The net income stream (after allowing for things like interest payments and management costs) exceeds £10m. If we did not have this income, we would be forced to cut half of the Council's services and put up charges to make up the difference. 

Can the Council afford the repayments? 

Yes. Each acquisition is affordable in its own right. We make allowance for things like interest repayments, loan repayments, management costs and sinking funds for longer-term refurbishments before we take any surplus into the Council spending plans. We are very prudent in our approach. The Council uses a proportion of the rental income to meet the cost of repayments as well as setting asides to cover future potential dips in rental income.

What will happen if the property market crashes?

If the values of the properties decrease, then the Council will still have a number of tenants in situ who will be paying rent (for example BP paying rent until 2036). We aim to have tenants signed up on leases for around 10 years. We are investing on a long-term basis and we fully expect to hold these assets through a number of economic cycles. We have made allowances for costs such as refurbishment and void periods when there are no tenants, and we are building up sinking funds to ensure the money is there to cover any unforeseen issues, such as the cost-of-living crisis when we need it. We currently have £33.4m set as at March 2025.

What's a 'sinking fund' reserve and how big is it?

A sinking fund is a sum of money set aside to cover for foreseeable future costs and unforeseen events. For example:

• when tenants move out and we have a void period before the next one moves in
• when we need to refurbish a building

The sinking fund is £33.4m at 31 March 2025.

Councils shouldn't be playing the property market. Do you know what you are doing? 

Local authorities have a long track record of investing in property in order to regenerate their areas and provide housing and income. Other local authorities have assets far in excess of Spelthorne. 

We have recruited expert staff into the Council from the private sector and we also use top City firms of surveyors and solicitors to advise us. 

Could the Council go bankrupt if these investments go bad? 

No, the Council cannot go bankrupt. We manage our risks by having a diverse portfolio of assets and a mix of tenants from different sectors of the economy. 

Why is the Council paying out such big sums of money to consultants and lawyers?

We believe it is a false economy to seek advice based purely on cost. We want residents to be assured that we have chosen the best people to do the job of looking after their interests, and this costs money.  We always seek to get the best value from all of our partners. 

How much money is the Council making? Where is it going? 

The Council is receiving around £46m a year in rental income. After deductions, we are able to spend over £10m of this on services for residents and new homes for residents. 

The remainder of the money goes into paying interest, paying off loans, making provision for the management costs of the buildings and contributing to our sinking fund for the future. 

How much have we spent, and how much are those assets now worth? 

Since 2016, we have invested £914m in commercial assets. We will have the assets valued on an annual basis, it is expected that the value of the portfolio will alter year to year, this reflects the changes in rental values, level of vacant space and other upcoming lease events i.e. lease expiries and break options which all impact on the certainty of future income streams. We have a proactive asset management plan in place, which addresses such matters and allows us to mitigate against loss of rent. We have no current plans to sell any of the assets, so the change in values is not a huge risk to the Council, but this revaluation is for good estate management purposes.

All these figures are publicly available in our accounts. In addition, we have also published details of our assets in our residents' magazine, the Bulletin and in an annual commercial assets report. We will continue to inform residents of these details because we want to encourage questions and transparency.

How do you know you haven't paid too much for these assets? 

We receive independent advice from more than one source before we proceed. 

Shouldn't the Council have a balanced portfolio of investments, not just property? 

Property investment is just one aspect of the way in which the Council invests.

The Council invests surplus cash funds in other pooled investments such as banks, bonds and other financial funds. Our track record is that we can usually (although this initially dipped during the COVID-19 pandemic) earn an average 6.25% - 6.5% on these investments.

We will be investing our sinking funds in a similar way to make sure that these funds increase in value.

We are not allowed to borrow with the sole purpose of putting money into these types of investments.

Overtime the Council via its wholly owned housing company will receive a steady income stream from the affordable and keyworker schemes it is completing for its residents. This will help diversify the Council's income streams

Are councillors qualified to manage commercial property investments? Shouldn't this be left to the professionals?

Councillors represent the voice of the resident and are there to challenge the advice and recommendations of officers and experts. They bring a common-sense approach to the scrutiny of our investment strategy.

Councillors need the advice of experts and professionals to help them decide what to do for the best. This takes place at regular monthly meetings between officers and key councillors. If they are not happy with the advice, they can challenge and stop the investments proceeding.

Any decisions on whether to proceed with an acquisition need to go to the Commercial Assets Sub Committee and then the Corporate Policy and Resources committee. The broad base of councillors on these committees' means there is a range of expertise which can be brought to bear from their professional financial, business and property perspectives.

The Council has added to its Commercial Assets Sub Committee an independent Chartered Surveyor who has experience of Surveying and Investment Management.

How are councillors accountable for their decisions?

Councillors are directly accountable to their electors. If you have concerns about what the Council is doing, you can contact your councillor. 

The Council has a number of Councillor led platforms where Councillors are briefed with updates on property performance and approve decisions. Both the Corporate Policy and Resources Committee, the Development Sub-Committee and Council makes decisions about property investments within the financial parameters set by the whole Council. 

Currently this means that any property decision needs to go to the Council if the sum is over £1m. These meetings take place in public (except where commercially confidential information is discussed) and residents can attend these meetings and get copies of reports from our website.

The Council decides how much it wants to invest in any specific property project based on the financial viability and other benefits i.e. delivery of new housing. Members of the public can attend Council and ask questions (if submitted in writing and in advance) about any aspect of the investment strategy. As an example, the Council's Capital Strategy is updated and approved by Council every February and information will be available on our website in advance. 

Ultimately, if enough residents decide they want a different strategy they can make their views known at the ballot box.

Why has SBC got hundreds of loans?

The Council does not take one loan per asset. Based on expert financial advice, we look for the best way to get the lowest loans over the life of the asset. The result is that the cost of the assets is being paid off steadily on a year-by-year basis similar to a mortgage. All these loans are at a fixed rate. By using this approach on the BP deal, for example, we saved £14m interest over the financing life of the asset. There are no extra administrative costs from this approach.

Has SBC got expertise to manage a £1bn property portfolio?

Yes. Since 2016 we have recruited additional expert staff into the Council from the private sector with experience of managing investment portfolios.

We use expert property managers for the different buildings.

We rely on a range of external consultants to supplement our capacity on a project-by-project basis. 

Is BP your biggest tenant?

Yes. In 2016, income from BP represented 97% of the income from commercial property.

Following portfolio diversification in 2018 and the addition of new buildings and tenants, BP now represents 40% of our income. 

Are any properties held offshore?

No. This is not part of our investment parameters. 

Is there a map that shows where the acquisitions are located?

Yes.

Have the properties been bought outright?

Yes. All are owned on a freehold or long leasehold basis.

Who advises the Council on acquisitions?

Our advice comes from teams within the Council and from external specialists including:

• Cushman and Wakefield
• Deloittes
• Savills
• Clyde and Co

Are all acquisitions openly reported?

Whilst we are no longer making acquisitions of investment assets, when doing so we took reports through our Committee system for each acquisition. Some of the detail is confidential before we conclude a deal because of commercial sensitivity, but we are committed to being as transparent as possible about our investment portfolio and development projects. 

Where do you borrow the money for the investments?

We borrow short-term from other local authorities and long-term from the Public Works Loan Board (a government agency (effectively part of the Bank of England - which provides development finance to local authorities). 

Why have SBC invested in one sector - offices - in one region rather than diversifying across broader sectors and locations to spread risk?

The Council has diversified its investments and tenants, with our tenants operating in many sectors of the economy. The Council has deliberately avoided investing in retail, especially out-of-borough, because of the higher risks associated with that sector. We have also invested for regeneration purposes within the borough in the Elmsleigh retail centre in Staines-upon-Thames and in industrial sites within the Borough.

How will this affect my Council Tax and Business Rates? Am I going to pay more for the Council's debt?

On Business Rates, this is set nationally by Government and we have no discretion on what we charge.

On Council Tax, the vast majority of this goes to Surrey County Council. Spelthorne residents pay less than 10% of their bill towards Spelthorne Council services. 

The money from the Council's investment strategy supplements what we receive from Council Tax and it protects services for our residents which might otherwise be cut. If we generated no investment income, we would not be able to consider, for example, building affordable housing for the future. 

If we did not have income from investments, then the Council could keep the Council Tax at the same level but would need to drastically reduce its service levels. The alternative would be to ask residents in a referendum if they would agree to pay a hugely increased rate of Council Tax to avoid cuts. In either scenario, provision of affordable housing would not be possible. 

How many properties has the Council purchased?

View our full list of investment acquisitions

What impact have the investments had on the Council's finances? 

Spelthorne Borough Council publishes its Statement of Accounts every year which sets out the income received from the investment portfolio and how this contributes to the cost of service provision.

The investments made to date have made a positive impact on the Council finances, providing financial support to our Revenue budgets, regeneration projects and housing initiatives in the short-term. In the medium to long-term, the investments are helping to grow our reserves and provide greater stability to the Council's finances as each year passes.

Whilst our investment strategy produces short-term benefits, the focus is on the long term, as we no intention of selling our investments.