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The entire nation seemed mightily shocked when Birmingham City Council issued a section 114 Notice (effectively a declaration of bankruptcy) on 5th September. But for those of us who move in local government circles, it was hardly any great surprise. Birmingham City Council - as the biggest local authority in Europe - is merely the most visible manifestation of a deep-seated malaise in local government financing generally. The canary in the coal mine, if you like. The headline in the Municipal Journal said, bluntly, “local government finance is broken”. And who can argue with that?
The Brum problem stems from the straightforward function of an historic Equal Pay claim which has presented the council with an eye watering, and wholly unaffordable, bill in the region of £650m to £760m, with an ongoing liability accruing at a rate of £5m to £14m per month. Something had to give. But Birmingham merely joins the ranks of Thurrock, Croydon, Woking et al - eight councils in total thus far - who are grappling with similar difficulties, albeit for differing reasons, and who are thus in considerable pain. And many other Councils are not so far behind, as a result of one thing or another.
I wrote a piece in the EG in that first week of September, urging the property and investor industry NOT to interpret this section 114 Notice as being a result of poor governance or decision-making in the City of Birmingham. Far from it, I argued, it was very brave of the leadership team to confront the harsh fact that, however hard they might try, there is no way to make the budget balance. And we all know that no council leader wants to be in this position. It gives us a textbook demonstration of the financial fragility of the local government sector, a stark outcome of austerity. Not to mention the continuing fallout from the pandemic, inflation, the war in Ukraine - and now the middle east, the crisis in adult social care. You name it, the list seems endless.
My EG piece was well received. The property market is positively disposed towards Brum. They have always gone out of their way to be market friendly. And it helps greatly that Birmingham had launched an aspirational growth plan at UKREiiF in Leeds in May and that the Council has a strong portfolio of assets, being - arguably - the 20th biggest landowner in the country.
The trick now of course, the BIGGEST EVER TRICK, is to avoid any fire sale. And it will be hard. The usual vultures are circling. The DLUHC Commissioners, led by the very able Max Caller, will help stabilize the ship; but Birmingham officers now need the best support and advice they can get. And they must push back on short term fixes. A joint public letter from Historic England, Arts Council England and the National Lottery Heritage Fund called for Birmingham's heritage and culture to be protected. Quite right. And the CEO of Birmingham City Council has said it "must not fall into the trap of just selling everything" and that it is important to properly assess the value of different assets and the impact they have on the city's economy.
So, what to do? Well, it would be super helpful if we could invent a term that is the opposite of “fire sale”. I am struggling with this, but if anyone can think of an appropriate construct, do give me a shout. But notwithstanding, there are lessons in here for all of us. What should any local authority - perhaps not quite teetering on the edge, but certainly facing some financial strictures in this most challenging time - be doing? Most are fully alive to this agenda, and the resultant further pressures that their public sector asset base is under. Hopefully they will all be taking measures to protect their authorities, giving themselves a thorough health check, and not being complacent. Perhaps urging their Portfolio Holder, as a matter of good housekeeping, to have a think about running a slide-rule over everything that they own…. even if they’ve done it before.
Partly in response to these challenges - and in recognition that our strength is in revitalising problematic property portfolios - a couple of trusted colleagues and I have formed a company called Rural & Urban Strategic. We are a team of property professionals, each of us with over 30 years’ experience in all disciplines of the commercial property sector, working in corporate property consultancy and listed property companies, and with local and central Government. Most of all, we have a proven ethos of public service. And this is the nub of it. In particular, we have a proven track record in sorting out “old toot” - forgive the use of the technical term - having done this with a number of local authorities. We don’t quite spin gold out of lead, but we do have a track record of turning liabilities into nice little earners.
Why not go to our usual professional advisers, I hear you ask? To which I respond, perhaps rather inelegantly: can they polish a turd? The mainstream real estate consultancies - and we work with all of them - will give you mainstream advice. But what they call a “stranded asset” we might tweak to morph into a “going concern”. We will think outside the box. But we’ll always be robust. So, show us your gash land and our team will try to find a way of using it to deliver your strategic objectives. We aim to deliver value-add for clients using our intrinsic understanding of problems, and to deliver economic solutions that are the best option for you and your community. At all times we will ensure that you retain control.
Our approach is simple and uncomplicated. We’ll come and sort out the troublesome parts of your portfolio, for an agreed monthly retainer, which may - or may not - include milestone payments for agreed targets achieved. Alternatively, we can offer the ability to JV sites, where you retain ownership of the land (or other asset) and we deliver for you; we’ll do this at our own risk, which would be reflected in an agreed profit share at delivery or sale point. More rarely, we have the ability to buy you out of the site, whether immediately or at a time that suits you best. Because of our relationship of trust with the public sector, we have a panel of investors with access to funds. And we can advise on the cheapest money.
In short: Rural & Urban Strategic promises to provide pragmatic solutions to your bespoke issues.
Just give us a shout if you think we could help. We’ll come and have a chat. Absolutely no obligation. We are always open to having a conversation about the art-of-the-possible with your property portfolio, no matter how challenging. Needless to say, we have to act in good faith at all times, because if we didn’t, we wouldn’t have a business. So, our reputation is everything to us. We will always proffer open, transparent, impartial advice. You may not like it, but it will be honest. And, crucially, it might just give you the substance and the arguments you need to persuade your Leadership to take prudent measures sooner rather than later.
Jackie Sadek, Director of R&U Strategic. A previous version of this article first appeared in ACES Terrier October 2023.