Trafford Council is seeking to build an investment portfolio, targeting average lot sizes of between £20m and £30m.
The local authority’s executive will next week be asked to approve a real estate investment strategy put together by CBRE, its investment advisor.
CBRE has written a paper providing context for investment, advising on appropriate investment opportunities and creating a balanced portfolio as the council seeks to alleviate budget cuts by creating sustainable, low-risk revenue streams. Investment is to be funded by borrowing from the Public Works Loan Board, which allows councils to borrow at lower interest rates than private property companies.
This cheap borrowing, together with austerity cuts to central budgets, is driving the rapid growth in the local authority investment market across the country – among the biggest deals this year is Warrington’s purchase of Birchwood Park for in excess of £200m.
Trafford will target income returns of between 5% and 6.5% to deliver sufficient margin over borrowing costs; investing directly in good quality primary and secondary assets across a variety of sectors, but with a focus on industrial and retail warehousing including food stores and alternative uses including budget hotels.
CBRE recommends that multi-let properties, reducing asset and tenant-specific risk, should be pursued, with no more than 10% of the portfolio income to come from a single tenant. Although the initial geographic focus will be on the North West, suitable opportunities outside the region will be considered. Lending in order to fuel development within the local area should be given consideration.
Although the average target lot size should be £20m to £30m, it is noted that smaller or larger investments shouldn’t be ruled out. CBRE adds that other classes, such as High Street retail and offices, should be considered on a case-by-case basis, with the focus on established locations in the latter category.
The executive approved a summary investment strategy in July, also passing an increase to the capital programme in addition to the £20m already approved.