Rotherham Council is planning to use its financial clout to secure external funding and kickstart a stalled commercial development in order to support inward investment and job creation.
Echoing a previous forward funding deal on the Advanced Manufacturing Park (AMP), the authority has developed a project to unlock property investment at JF Finnegan's Beighton Link site in the south of the borough.
Councillors and commissioners are being asked to approve the Council's acquisition of remaining land at the site where earlier phases are home to the likes of Pricecheck and Ideal Envelopes.
The acquisition will then enable the Council to work in partnership with the private sector (JF Finnegan) and access regional regeneration funding. The Sheffield City Region's JESSICA fund supports job-creating commercial property schemes through grants and loans.
JF Finnegan will then be procured to build two business units at Beighton Link, expected to total 49,000 sq ft.
The funding for the purchase (£990,000) is to be taken from the £5m Growth Fund, which was approved as part of the Council's capital strategy 2017-2022.
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Tim O'Connell, Head of RIDO, said: "Property market failure within Sheffield City Region is restricting the supply of new commercial property development. This is a result of developer costs exceeding returns (rent/capital values). In some circumstances, a lack of debt finance is also restricting development, particularly for speculative projects. The majority of banks will only fund pre-let or pre-sold schemes.
"Previous experience from the acquisition of the units at the Advanced Manufacturing Park indicate that in addition to economic development benefits there are good prospects of generating a revenue surplus from this type of investment.
"The Council will receive income through an increase in business rates and the completed units will be let on the open market to end users – inward investors or expanding local companies which will provide additional income to the Council."
The deal involves an element of risk and includes a rent guarantee fund which ensures that the Council receives the full rent from the date the units are completed even if a tenant is not in place.
The new units are expected to secure rents of between £269,500 and £291,550, alongside retained business rates of around £66,000. With costs totalling an estimated £4.8m, the deal represents a yield of between 6.99% and 7.45%.
Rotherham Council previously worked with landowner and developer Harworth Estates to unlock a £2.7m loan from the Sheffield City Region JESSICA Fund, which led to the first R-evolution scheme on the AMP, a 117,000 sq ft speculative industrial development, the success of which has lead to further phases.
The property at the AMP generates a net annual surplus of over £50,000 after taking account of all costs to the Council of owning the unit including capital financing charges.
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