By Tim Reade, Head of Property advisory, CIPFA
Local authority property investment has been brought into sharp focus in recent weeks following the release of CIPFA’s revised Prudential Code, Treasury Management Code and the Ministry of Housing, Communities & Local Government (MHCLG) guidance on Local Authority Investment activity.
CIPFA Property has recently undertaken a nationwide series of events, via its Strategic Asset Management Network, outlining the changes to the codes and guidance in a property context, along with an examination of the risks associated with property investments. Feedback from its members has provided useful insight into activity at the ‘coal face’ and has identified a few revealing trends.
A foremost concern of property and finance officers is the need to understand the markets in which they seek to invest. The practicalities of successfully investing alongside institutions, property companies and other sector specialists presents significant barriers and concerns to many. Competition is fierce and an organisation whose main purpose is not property investment, will necessarily find such activity more strenuous and demanding exposing gaps in a number of areas.
There is a recognition that many authorities have limited experience or the necessary skills to enter the market when acting entirely as a body corporate without external support. Notwithstanding the fact that there are some authorities who have a very mature property investment model, the majority are currently limiting their forays into the market due to this knowledge and/or skills gap.
With the appetite for risk set that much lower in local authorities than elsewhere, those seeking to act are similarly concerned with the need to ensure a strategic approach to the risks associated with investment of this type. Most clearly understand ‘property risk’ in an investment context. But many, when trying to ensure a holistic approach, seemed challenged and indeed troubled by the need to ensure the organisational and financial risks are encompassed within an overall strategy.
The challenges involved in needing to join together the very different parts of an already complex organisation, to grasp what can be a risky yet worthwhile investment opportunity, are not new. Again, while some have a very mature and developed working relationship with each area fully covered within an established risk management framework, the majority are still feeling their way. They tend to make only limited progress given the frictions and sometimes very divergent views held by those stakeholders within an investment project.
In sum, there is a very real sense that authorities in England wish to continue and indeed further explore property investment opportunities. They are however reticent to do so full-bore, whilst knowledge gaps and a deeper understanding of risk and its management require development. It is clear there is some very good practise being undertaken and so one has to suggest that what is needed most, is the widest sharing of it such that the corporate knowledge being built up within local government is there for the benefit of all.