The Committee is asked to consider and respond to the Call-In in accordance with the procedure set out in the Council’s constitution.
Councillor Andy Stranack introduced the Call-In item, outlining the reasons why the key decision to acquire the freehold interest in the Croydon Park Hotel had been called in. These reasons included the decision being made over summer holiday period which raised concern over the transparency of the process, there did not seem to be a clear framework in place for the decision to be made, there was concern that the purchase was inconsistent with the budget and that it was not in keeping with Council policy.
The Committee agreed (3 votes for and 2 against) that it would review the decision and allocated 30 minutes for this item.
Councillor Simon Hall, the Cabinet Member for Finance and Resources, advised the Committee that in making the decision the risks and rewards had been analysed and it was felt that the property represented good value as an investment. The asset included a long lease with the current tenant and from the valuation it was estimated that the return would be in excess of £1m per annum over the cost of borrowing. There was also good potential for the future redevelopment of the site should the hotel no longer prove to be viable.
The Executive Director for Resources highlighted to the Committee that the existing Cabinet Asset Strategy, which was agreed in 2014, included provision for income generation, but Asset Investment Strategy (the previous item) had been brought forward to put a framework in place for future asset investment. The Efficiency Strategy also included provision for pursuing commercial opportunities and the investment would contribute towards the delivery of 2018/19 budget.
The Chairman outlined that having reviewed the process and the information provided it was for the Committee to decide the outcome of the call-in. It having been confirmed that there was an existing principal in place for asset investment, which was supplemented by the previous item on the agenda, the Committee would have to decide whether there remained valid reasons for the call-in based on the four criteria outlined in the original call-in request, namely:
i) The decision is outside the policy framework;
ii) The decision is inconsistent with the budget;
iii) The decision is inconsistent with another council policy; and
“The decision was not open and transparent. There has been no opportunity for questions to be raised by back bench Councillors and the public to verify compliance with policies and the budget, and that the purchase is a sound investment. ”
Councillor Jason Cummings raised concern that as the purchase was predicated on an expenditure of money to receive a return, the financial information provided raised questions about the tenants continuing ability to pay their lease. The accounts showed a loss of £290,000, with reserves of £140,000 and having previously been sold in July 2017 still showed a loss. As such it was questioned should the tenant default on their payments, if it would still be a good acquisition and how was the covenant strength rated?
The Executive Director gave reassurance that the company set up to manage the property had never been late in making their payments and there was no suggestion that they were struggling to pay. The new owners had made improvements to property and the valuation report provided valuations for other uses including redevelopment. The sale was being conducted on the open market with four other interested bidders.
It was also confirmed that the covenant strength provided was not a strong covenant strength. The strength was provided by the sites location and its redevelopment potential. The valuation took into account the weak covenant strength and that the tenant was fully paid up and looking to make further investment in the property.
Councillor Stuart Millson advised that he would be reluctant to support the Cabinet decision as he was concerned that the framework had not yet been adopted and as such felt the purchase to be premature. It was also felt to be questionable whether this particular investment was too much of a risk with public money.
On the basis that the information provided gave sufficient reassurance that the risks of the investment had be fully considered and that all points raised had been answered it was agreed that no further action was necessary and that the decision could proceed as originally intended (four votes in favour and 1 against).
That no further action is required and the decision can be implemented.