CROYDON IN CRISIS: The borough is looking for a buyer for its failed development company, as a secret report to next week’s scrutiny committee balances the costs of selling off sites currently under development against the price of persisting with the loss-making company.
EXCLUSIVE by STEVEN DOWNES
A council meeting next week will hear recommendations that Croydon should begin the winding up of Brick by Brick, including selling off some sites and unfinished developments that had been earmarked for the council-owned loss-making house-builders.
The report from local government troubleshooter Chris Buss lays out the options to salvage something, anything, from the mess created by Brick by Brick’s blundering management and the slack controls exercised over the past five years by Croydon’s cash-strapped council.
Inside Croydon can reveal that, contained within a secret, Part B agenda to Tuesday’s scrutiny committee, Buss and management consultants PwC conclude that the borough could lose at least £100million from the £223million it is owed by Brick by Brick in loans and unpaid interest repayments.
It was the “risk” that £36million-worth of loan and interest repayments from Brick by Brick would not materialise that was given as a primary reason when the council issued a Section114 notice in November, admitting it could not balance its budget for this year and was effectively broke.
Since it was founded by the Labour-run council in 2015, Brick by Brick has never made a penny in profit. Its latest accounts, for 2019-2020, which were due to be published in August, have yet to be released, with some Town Hall sources suggesting that the business may not meet audit tests to be signed off as a going concern.
Notably, the council-funded house-builders have delivered just three purpose-built council flats in their near-six-year existence.
The report for the scrutiny committee was published yesterday, with most of the key financial details kept tightly under wraps, despite council leader Hamida Ali this week stating her aim “to become a much more transparent, open and honest council”. A move last night from opposition Conservative councillors to have all the figures placed in the public domain was rejected.
Ali and Katherine Kerswell, the interim chief exec, were today waiting on another report into the dysfunctional council, this time from Tony McArdle and the Whitehall-appointed improvement panel, which was due to advise the Ministry of Housing, Communities and Local Government whether the authority is in a fit state to be allowed a bail-out of totalling £150million.
The losses associated with Brick by Brick will hardly persuade McArdle and the MHCLG to be more sympathetic to Croydon’s predicament. But the decision to put a halt to throwing good money after bad with the poorly-run housing developer probably will win some approval from the Whitehall mandarins.
Tuesday’s meeting is also to consider a wide range of disposals of council-owned properties, from the Croydon Park Hotel, to five of the borough’s public libraries, as well as the College Green housing development site, for which Brick by Brick was granted planning permission last year. That site, like many others earmarked for Brick by Brick, will now not be transferred, as the council seeks other potential buyers.
Scores of other projects around the borough which Brick by Brick had out for consultation or in the planning process, but where construction work has not started, will now be dropped from its “planning pipeline”.
This includes most of the roadside verge-type sites, including one controversial scheme outside the entrance to the Hutchinson’s Bank nature reserve in New Addington (click here for the full list of sites from the council report).
According to the figures which have been included in the report, as at December 31 2020, the council had lent £196,287,521 to Brick by Brick.
Brick by Brick had also accrued interest of £27,300,023 by the end of 2020-2021.
A separate report going before the committee shows that the amounts lent include £59.3million in loans to Brick by Brick specifically for the Fairfield Halls refurbishment and development of the neighbouring College Green site – almost twice the original budget for the refurb project. The conduct of the Fairfield Halls refurbishment is now subject to a separate, on-going investigation being conducted by auditors Grant Thornton.
Buss’s report into Brick by Brick states that proceeding with his recommendations, “…means that the organisation will be in a run-down situation whilst sites are completed or disposed of. This will impact staffing within Brick by Brick as the level of work diminishes”.
The realisation of the massive losses incurred by Croydon’s tax-payers because of Brick by Brick will doubtless see renewed calls for the dismissal of Colm Lacey, the former council staffer who describes himself as “the founder” and managing director of the development company.
Among the options being put before the council is an outright sale of the company – with the report suggesting that they had already received at least one expression of interest.
Buss was clearly unimpressed with the way Brick by Brick was run, or the council’s scrutiny of its operations. “When the Council set up Brick by Brick, there was limited regard evidenced in the cabinet papers at the time of the potential downsides from investing through a wholly-owned housing subsidiary and the risk to returns to the council within a set period,” the council papers state.
“The emphasis in reporting the arrangements at that time was on the potential positives arising from the establishment of Brick by Brick, with limited assessments of the risks potentially involved. The impact of that approach has in part led to the financial position that the council now finds itself in.”
An on-going problem confronting Buss and the consultants from Price Waterhouse Coopers has been “the absence of reliable cash flow data from Brick by Brick”. A report by PwC outlining the potential costs involved in actioning the recommendations has not been released publicly.
Buss rejects some of the alternatives available to the cash-strapped council. “Some of the options such as immediate closure, management buy-out or ‘business as usual’ are non-viable, due either to the size of the loss for the council that would be incurred or the lack of substantive funding from the council to fund open-ended ongoing business other than for the immediate future,” the report states.
“The other options which involve either build-out of sites, starting new sites or sale of the business all have an element of risk in terms of both valuation and cost uncertainty. This makes them potentially unpalatable options to the council as the extensive build-out would involve the council entering into further general fund borrowing which would place additional pressures on the revenue budget without a guarantee of return.
“The level of cost uncertainty and valuation assumptions are in the paper within the Part B of this agenda.”
In Councilspeak, “Part B” of agenda documents are those which are withheld from the public.
As the council cuts its losses, Buss’s report recommends only “allowing Brick by Brick to continue building out schemes currently on-site and due to complete by October 2021, market sites for disposal where completion dates are longer, and review sites no longer proposed for development”.
The council will still need to cough-up another £10million to fund Brick by Brick to finish off some of these schemes, the report states.
For those sites which have completion dates beyond October 2021, the report recommends that Brick by Brick is authorised to market the sites for sale, but always reporting back to Kerswell, adding firmly, “For the avoidance of doubt, should the council’s interim chief executive object, Brick By Brick shall not have the shareholder’s authority to sell those sites.”
Indeed, the recommendations make clear that Brick by Brick will not be able to operate independently any longer, and all key decisions will have to be referred first to Kerswell, and to the council cabinet.
Brick by Brick is expected to deliver a revised business plan for 2021-2022 for approval by the council by May “reflecting the decisions made under this report and to include the consequential impact on staffing and other relevant matters”.
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