Letter: Comments on Liongate Sale Are Wrong, GBC Made Correct Decisions and Was Fortunate

Published on: 10 Aug, 2021
Updated on: 10 Aug, 2021

Liongate – currently being developed by its new owners.

From: John Rigg

lead GBC councillor for Regeneration and a R4GV borough councillor for Holy Trinity

See relevant articles here.

There have been some very misleading comments made by some Conservatives, mainly Geoff Davis, and Guildford Labour members in their letters to The Guildford Dragon NEWS, about the success, or otherwise, of GBC selling the Liongate building. I would like to offer some clarification.

First, a review of the history of this investment. Investors buy an office building for the total investment returns from ownership. You cannot judge an investment on buying it, nor by the rental return you receive but only at journeys end on selling it and the whole calculation can reveal the quality of your initial judgement at the outset.

This so-called office investment was bought for £13 million in 2014 by the Conservative council and valued for office use five years later for £4 million, ie as big a disaster as one might envisage.

At the time of purchase, from the documents l have seen, there was no reference anywhere to buying it with other uses in mind, so I think it is fair to assume it was only bought as an office investment.

If an investment has collapsed in value when sold, why?

Everyone with real estate investment expertise knows that the life of a 1980s office building is often about 20 years. After then the lifts, air-conditioning, floors ceilings and toilets need replacing and the total cost can be as much as a new building and there is no certainty of successful re-letting, as can be seen today in Guildford with long term vacancies of many new office buildings.

So the value of Liongate collapsed as it approached its “end of life” and the lease income stopped.

Liongate was already 25-years-old in 2014 when GBC bought it for £13 million. One additional mistake was to buy an old building with a single tenant because that tenant leaves you really are in trouble. There was only one tenant in Liongate and they did decide to leave.

Empty and vacant it is valued at £4 million for office use in 2019 which l think was predictable. So in my view, it was always a disaster waiting to happen.

What should have happened?

The Conservatives should never have bought an old building let to a single tenant towards the end of its useful life with a break clause which, if triggered, would take its value from £13 million to £4 million.

Every year from 2014 to 2018 they should have tried to sell the asset as the lease moved closer to the lease break.

But by 2018 it was too late – the tenant was going.

By May 2019 when the newly elected council took control the cross-party Assets Committee, which included Cllr Nigel Manning, a Conservative, were left with the problem.

The council’s current adviser Lambert Smith Hampton (LSH) undertook a “sale” valuation report and sensibly was asked to consider all possible options to avoid the massive fall in office value. Fortunately, the most valuable alternative use, if confirmed, was Permitted Development to residential use.

GBC would not want to hold it empty or develop it. Also, sited between three roads one of which one is the polluted A3,  it was not suitable for families requiring social housing for environmental reasons. These were clear decisions of the housing team.

The private sector however can ignore these negatives and bid for the building. During GBC’s marketing bidders were clearly informed by the council that the flood situation was resolvable and hence Permitted Development (PD) to residential was available and made their bids accordingly.

The £10 million winning bid was consistent with the LSH estimate for confirmed PD use, in fact, it was more. What a relief! A “get out of jail card”, l would say, following the original poor investment decision.

l can see there were reasons for the council not to apply to their own planning department for Permitted Development. The planning department is independently minded and a (third ) formal refusal would have been disastrous to the marketing even though by then the flooding was known to be resolvable.

The bidders were all informed about the flooding status change and permitted development (PD) rights being available and they all reached their own decisions, the winners bid reflecting what the advisers predicted for a PD consent, although they paid rather more than the value estimate.

So it was a good result from a bad decision in 2014.

Finally, if you look at the purchase price the rental income we received and the sale proceeds the council recovered its investment. I cannot deny it was a poor investment but l am persuaded from what l have seen that, so far, the new R4GV /Lib Dem council (if one chooses to make it political) retrieved us from a big hole recovering our investment funds.

This is my assessment from the reports l have seen, using my experience having bought and sold major office investments during a long career advising leading institutions on similar transactions.

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