A Scottish council has agreed a unique £45m deal with Barclays against income from its commercial properties.
North Lanarkshire Council will now transfer 975 of its commercial sites to North Lanarkshire Properties LLP, a new limited liability partnership established with the bank. “This is a truly innovative approach to some of the challenges we face,” Council leader Jim McCabe explained.
“As our revenue budget has decreased it was important for us to be able to meet our commitment that services would be maintained to the highest possible standards,” he said, adding that the council’s “financial planning strategy required innovative maximisation of its assets to deliver ongoing commitment to its services”.
In total the council has over 1,100 commercial properties on its books located across North Lanarkshire and ranging in size from 20sq to 4,000sq metres.
Any loans agreed with Barclays will be repaid over 25 years, with a fixed interest rate for the first 10 years. The local authority has also negotiated a break option at the 10 year point where it will be able to negotiate new terms or refinance the loans.
Both Barclays – chosen after a competitive tender process – and North Lanarkshire Council have refused to release financial details of the loan deal, nor the size of any arrangement fees in securing the loan. The authority said the final agreement was based on the estimated rental income that would have been realised from its properties over the next 25 years.
Based on the council’s own business plan, Cllr McCabe confirmed the authority “does project a profit” over the first 10 years of the loan package. “This deal secures a clear approach to our commercial property portfolio,” he added. “I am pleased that the enormous amount of work undertaken has paid dividends and has secured best value for the people of North Lanarkshire.”
The pioneering council loan agreement comes after two years of consultations and planning. A steering group was formed in 2011 and an options appraisal was undertaken with support from the commercial law firm, Dundas and Wilson, and accountants PWC.
Jamie Grant is Barclays Scotland’s head of corporate banking. “This is one of a number of real estate deals we have completed this year as we proactively look to increase our loan book across the public and private sector and deliver further support for corporate Scotland,” he explained.
“Our specialist public sector team in Scotland has an innate understanding of the requirements of local authorities, particularly important in the current climate where creative solutions are required to deliver maximum return on assets.
“We worked in partnership with North Lanarkshire properties to create a forward thinking funding package which allowed it to free up capital on a substantial commercial property portfolio,” he added.
A number of other local authorities on both sides of the border are thought to be in negation with Barclays and other financial institutions to replicate the North Lanarkshire deal.
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