After over a month of secrecy and closed door meetings (see here), Salford Council has finally gone public on its plans to 'invest' £200million over 25 years in posh office blocks at Two New Bailey and, what it calls 100 Greengate, otherwise known as the Embankment the big black glass building opposite Manchester Cathedral.
Two New Bailey is to be the second office block on the Salford border with Manchester, and the Council is set to underwrite a 25 year lease on the whole building, which could end up costing Salford residents millions of pounds.
The building is being developed by Muse Developments and the English Cities Fund, an unaccountable amalgam of the megabucks Legal and General Pension Fund and the Government's Homes and Communities Agency.
Salford Council had a similar deal for One New Bailey, where it has been stung for over £1million paying for empty offices.* Up until this month, the block was around one third empty, with its website advertising over 35,000sqft for rent. This month, wealth management company, WH Ireland, has taken over part of the first floor, leaving over 30,000sqft still being advertised for rent.
For this one building alone, Salford Council has a lease commitment for £54.93million, and has in its reserves £12.343million "to cover future void risk and tenancy incentive periods", according to its latest accounts for 2016/17.
Salford City Mayor, Paul Dennett, said yesterday that the Two New Bailey office block will bring 'jobs and training opportunities' but One New Bailey has seen law firm Freshfields Bruckhaus Deringer merely 'relocate', as is the case with WH Ireland.
The only other business to have moved into One New Bailey is decadent restaurant Menagerie, which as a Manchester Evening News review stated, will see women hanging from a chandelier "pouring champagne into the glasses held aloft...There'll also be a bathtub next to the bar which will be filled with champagne - and dancing girls." Are these the jobs for Salford people the Mayor wants to see?
Meanwhile, cocktails will be served at the opulent eaterie with burning fake £20 notes. The Menagerie, marketing itself as in 'Manchester'**, is sited opposite the former notorious homeless camp where a rough sleeper was burned to death in his tent (see previous Salford Star article - click here).
Meanwhile, opposite Manchester Cathedral, Salford Council is to direct fund a second huge black glass building, 100 Greengate, or as it's marketed, Embankment 100.
Property Week ran an article weeks ago, before the official decision was made public, stating that this was "a joint venture with current partners Ask Developments and Tristan Capital and will forward-fund the scheme in full. The gross development value of the building is thought to be about £100m."
This will be a second building on the Embankment, dubbed 'the ugly sisters' by planning bloggers. The first Embankment 101 opened recently, with Swinton Insurance 'relocating' and Sainsbury's signed up to put a shop on the ground floor.
For this building, Salford Council signed an eight year 'pre-lease', guaranteeing 100% of the rent. The Council's accounts state "There is a two year rent free period from the commencement of the lease and the building has now been fully let by the developer. The likelihood of any eventual payment, its actual amount and timing are uncertain, no provision has been made in the Council's accounts."
Yesterday, in a press release, Salford Mayor Paul Dennett was putting a positive spin on the massive public money gamble, saying the buildings will create "3,000 long-term jobs in Salford", while Lead Member for Finance, Councillor Bill Hinds, said that the move would bring in "£2.2million" per year for public services, in business rates and rents. The release was full of words like "aims" and "expected".
The latest Salford Council accounts show a deficit for uncollectable business rates in the city of a staggering £5.159million, which has been written off. In the release, the Council cites the AJ Bell Stadium as an example of its capital investments. The AJ Bell Stadium made a loss of almost £1.5million last year (see here).
The release also cites examples of other local authorities investing in car parks, buildings and shopping centres. In the 1970s councils adopted the same approach, which tended to end in financial tears.
Regarding the £200million the Council is gambling on the office blocks, Hinds states in the release: "People may ask where the money is coming from. It is capital programme funding that is used to develop business and infrastructure opportunities."
Generally this 'capital' is financed through Council borrowing and the interest on that borrowing comes from 'revenue' funding which pays for front line services like The Grange disabled children's residential home that the Council is determined to shut (see here).
The same source of capital funding would also be needed to pay for the Council's much lauded new baby unit. Instead, Mayor Paul Dennett is sending the begging bowl around the city expecting Salford people to pay for a new roof for the unit...
"The Council owns the building and needs funds for a new roof, a lot of TLC and specialist works to make it ready" the appeal states "These things do not come cheaply. We are asking for donations and your contribution will make an enormous difference helping to fund one of the birthing suites..."
Unsurprisingly, so far, only £1,375 has been raised of the £100,000 target, from 39 people, with only 12 days left of the appeal to run...
* The Salford Star recently reported this figure as £3million (see here) but we were totally misled by a Freedom of Information response from the Council. The Star requested under the Act details of amounts paid to Legal and General for the offices at One New Bailey.
In March this year, the response received stated that "The council is not using these offices for its own occupation; they will be used by other companies and organisations"...the future tense 'will be used' makes an assumption that the offices were empty...when in fact, as Councillor John Merry pointed out in a Twitter post, this figure is for rents paid to the Legal and General for whole building, two thirds of which was occupied at the time. With it being a third empty at the time of writing, we can now estimate the figure paid for empty offices at around £1million.
Up until this month, commercial property companies were advertising up to 37,469sqft for rent at One New Bailey, at £28.5 per square foot. This works out at £1.069million underwritten by Salford Council. Since then, 'wealth management' company WH Ireland has taken 6,610sqft.
One New Bailey is still advertising 30,537sqft for rent of a total 124,651sqft, which leaves the building around one quarter empty or £870,000 that the Council is paying Legal and General for empty offices.
**On the New Bailey website, the Menagerie was deliberating, in public, over whether to give its address as Manchester or Salford see photo