Ministers take control of Woking over £2bn property debts

The government has taken direct control of Woking Council after ill-fated property investments resulted in debts 100 times its income. Woking Borough Council in Surrey will be overseen by a team of expert commissioners after a government review, launched in January, revealed how the authority’s borrowing to fund its property purchases had left it on the verge of effective bankruptcy. The council currently has debts of £1.9bn, but “as a result of the complexities of the loan facilities” this is predicted to rise to £2.4bn within the next two years. That is the equivalent of £19,000 a head for each of its residents. The report stated: “The net revenue budget is £24m, which leaves no room for the repayment of debt of this large a scale. There is no realistic route to the Council returning to financial sustainability alone. Finding a solution is urgent.” Much of the content of the report, detailing the collapse in value of Woking’s property portfolio, has been “redacted for commercial sensitivity”. However, the two largest commercial schemes in the council’s portfolio are the regeneration of Victoria Place in the town centre and the regeneration of Sheerwater housing stock. Financing for these schemes account for the majority of the council’s debt. The review has advised the council to take out a further £300m of loans over the next three years to avoid a fire sale of assets that would force it to write off up to £400m. Woking invested almost £2bn in commercial real estate between 2016 and 2019, funded by money borrowed from the Public Works Loan Board at lower than commercial interest rates. The review said: “The quantum of the borrowing and the scale of investments made, for the council to shoulder on its own, had been disproportionate, too large and the risk taken is disproportionate to the social impact.” It added: “A rapid sale of assets would be an inappropriate course,” as many of the assets were valued at less than the debt used to buy them. The Victoria Square regeneration is currently valued at between £300m and £350m, but was funded by £700m of debt. The council’s other investment properties, the report said, had a net book value of £330m at the end of 2020/21, after falling by £43m during the year. The report concluded: “The council need to develop and enact a strategy to achieve the best possible value for their property portfolio. This may include maximising profit of the property portfolio which would include increasing capacity within the property team and seeking external opinions on how best to do this. The council require help in the management of their asset stock, and this is probably best achieved if passed out of council control. There are different options to achieve this, including partnering with development companies or central government.” The borough was earning £22m a year from its commercial properties and £8m from the carparks, but the collapse in parking and commercial rents during the pandemic has left it vulnerable. The review said there was a real risk the council may file for effective bankruptcy in the next few months, adding: “The biggest risks to the revenue budget position are the performance of the commercial investment estate and the parking income.” Before its investment into commercial property, the report said, Woking had been a cash-rich council. Woking had been under Conservative control for 14 years until it was taken over by the Liberal Democrats in last year’s local elections. To send feedback, e-mail piers.wehner@eg.co.uk or tweet @PiersWehner or @EGPropertyNews