29 September 2008

The ratepayer pays ..............

I think that I've said it before but events in Somerton, where the Town Council are concerned, rarely fail to amaze me and the STC's recent press release, dated 23rd September '08, about Etsome Terrace and Cary Court is yet another fire-cracker. When I read it first I thought it must be some sort of elaborate practical joke but, the further I went, the more I realised that it was, amazingly, perfectly serious.

In summary, after owning the Etsome Terrace site for 5 years, and having done nothing with it, the Town Council agreed in December of 2007 to sell it for £950,000 to Edgar Homes as a development site. That sale has only just been completed but not quite in the way that might have been expected. Today, some 9 months after that agreement, the Town Council have further agreed, with some of the self-same individuals, to buy the Edgar Builders headquarters building for £700,00. Of the balance of £250,00, the Council's press release states, the Council has received a cheque for a little less than £130,00 which means that fees and a contamination clean-up at Etsome have consumed another £120,000.

So, in simple terms, the Council entered into an asset swap where it got Unit 8 Cary Court and a cheque for £130,000 in return for the Etsome Terrace site. But a more considered review of the balance sheet shows this 'deal' to embody a real loss to the taxpayers of Somerton:

Cost of Etsome Terrace site (2002) £220,000.00p
Cost of borrowing for 5 years (estimated at 5% pa) £55,000.00p
Sale price of Etsome £950,000.00p
Cost of sale and clean-up at Etsome £120,000.00p
Cost of Unit 8 Cary Court £700,000.00p

Total costs to Somerton Town Council £1,105,000.00p
Total receipts from both transactions £950,000.00p

Loss incurred by Somerton Town Council £155,000.00p

On top of this realised loss of £155k, Somerton's ratepayers will now have to shoulder the burden of the fit out and I doubt anyone knows how much that will cost. But, as I said last time, because this remodelling is being done to an industrial building, it is fair to propose that no-one will ever want to buy the 'added value' back so any investment in that structure, on that site, is likely to be a total loss.

Now its fair to ask if this deal represents 'best value' for the ratepayers of Somerton who are, afterall, funding this joyride. The Town Council have already said that this is a fabulous opportunity and, frankly, what else can they say? They are not about to say, "Well, we didn't have any choice. If we didn't accept the building in payment then the deal was off." So, to me, it looks like nothing more nor less than face-saving. The Council publishes their 'press release' crowing about their skill at delivering such a fantastic deal when the figures tell completely the opposite story. And what the figures don't tell the taxpayer is just how much its going to cost to heat, light, insure and maintain this building and all of that before the taxpayer funds the significant alterations which will be needed if the building is ever to support the user groups whose needs were considered by the Steering Group (and entirely ignored by Somerton Town Council).

On the other side of the equation, what's in it for the purchasers of the Etsome Terrace site who are, in large part, the vendors of Cary Court? Well that is actually harder to imagine. Edgar Builders, the owners/occupants of Unit 8, clearly wanted shot of the building, probably because they couldn't justify owning it. I have no idea how much it was costing them in terms of borrowings, maintenance and running costs but, in the economic climate of today I can imagine that it was killing them.

But why would they want to complete a transaction on land which, on the face of it, looks seriously overvalued today? That's equally hard to understand but maybe they are just taking a punt on some sort of recovery in the housing market. Without the millstone of Unit 8 around their necks, they can afford to hold the land for a few years and then make money on the housing development when the economy recovers. Of course, any development will be at a greater density than that supported by Somerton Town Council prior to the land being sold to Edgar Homes.

But there is also a third element to be considered in this complicated web of interconnected interests and that is the impact that the Cary Court deal will have on perceptions of property value on the Bancombe Road Industrial Estate. I don't think that anyone with a brain is going to say that the property market, commercial or residential, is in anything but free-fall right now. So how do you throw down a marker which says that property on the Bancombe Road Trading Estate is actually holding up well. The answer is simple - do an asset swap like the one just completed which will mean that the Land Registry will note a really good value achieved at Unit 8 Cary Court and that will increase confidence in the site as a whole.

So this deal is good news for Edgar Builders who get shot of a financial millstone and its good news for property prices on the Bancombe Road Trading Estate. And, in common with taxpayers here and in the states, the ratepayers of Somerton will have to wait a little time to find out just how bad the news is for them.

As I think I've said before, you really couldn't make this up.

Till next time.