Croydon rejects Urban Splash’s Brick By Brick bid

Croydon Council is to reject Urban Splash’s offer to buy its development company Brick By Brick. Following due diligence on the bid, the council said it is “recommending not to proceed with the sale but continue to develop these sites in order to get the best deal for residents”. It is proposing to retain ownership and build out the development pipeline itself, despite the council’s own bankruptcy and following several large loans to Brick By Brick becoming insolvent. This would see Croydon develop 23 of 29 sites, providing 774 homes, with all bar one to be completed during this financial year. The remaining six sites, which are not under formal contract for development, would be marketed for sale. Brick By Brick would then be wound down as a business, with completion of the final developments expected in 2023. The council’s scrutiny committee will debate the proposals next week ahead of a cabinet meeting on 12 July. Croydon Council leader Hamida Ali said: “Our priority over the future of Brick By Brick has always been to find a solution that both secures the best possible return for the council’s investment on behalf of our taxpayers and provides much-needed genuinely affordable homes for local people. “We have thoroughly explored our options to find a way forward on Brick By Brick that represents the best possible value for our taxpayers, and I want to thank all our expert external advisers for their important contributions on this. Now our focus is to make sure that the Brick By Brick homes under construction are completed, with all the support and guidance it needs to do that.” Council fights bankruptcy The council declared itself effectively bankrupt last November, issuing a notice under section 114 and a ban on all non-essential spending. A report in the public interest from auditors at Grant Thornton revealed £545m borrowed over three years, with £200m invested into Brick By Brick, with no dividends or interest paid and a rushed £100m asset acquisition fund with commercial income affected by Covid-19. In December, Croydon issued a second notice, with a projected £66m overspend for 2020/21, with £30m attributed to undeliverable dividends and interest from the developer. The council has subsequently halted a number of its developments and sought to sell the business. A final offer from the preferred bidder was received in April but the sale decision was delayed. In May, the council agreed a £10m loan to the development company in lieu of sales receipts for private and affordable housing to prevent the company being forced into insolvency. This was in part caused by the deferral of a council decision to purchase a block of 104 social flats. The finance was in addition to a separate £10m add-on in February. The council issued the loan as part of a £161.5m new loan agreement, consolidating a number of older facilities. This reflected a 100% debt position, with the council withdrawing equity from the business. The previous arrangement comprised 25% equity and 75% debt. Earlier this year, to further shore up its finances, Croydon identified 15 assets owned by the council to be marketed for sale. Most recently, this saw the Croydon Park Hotel brought to market with a £20m price tag, with the council taking almost a £10m hit against the 2018 purchase price of £29.8m. Croydon is also seeking to sell the 421-bedroom College Green scheme for £20m. Brick By Brick secured planning consent and the council planned to transfer the ownership to Brick By Brick to generate profits for the council – including covering the £70m bill for the Fairfield Halls refurbishment. However, it has since back-tracked and opted to sell the site and shoulder the costs. To send feedback, e-mail emma.rosser@eg.co.uk or tweet @EmmaARosser or @EGPropertyNews Image © Savills