EXCLUSIVE by STEVEN DOWNES
Croydon Council could have to pay at least another £40million in order to sell off Brick by Brick, the Labour-controlled local authority’s failed housing developer which bankrupted the Town Hall.
And the multi-million-pound spending on the failed brainchild of Jo Negrini, the council’s ex-CEO, and discredited ex-leader Tony Newman won’t end there, either.
Trade magazine Property Week has reported that Croydon has found a buyer for Brick by Brick: the Manchester-based property group Urban Splash.
The deal is going through the final stages of due diligence, and is set to be rubber-stamped at the council cabinet meeting on May 17.
Property Week reports, “The deal would wipe out almost all of the council’s debt related to Brick by Brick.” Which, if confirmed, would be a minor miracle. But to use an overworked cliché, the devil is in the detail.
Since it was formed in 2015, according to the council’s own figures to the end of 2020, Brick by Brick had borrowed £196million from its owners, Croydon Council, to use for developing housing on public-owned sites around the borough. Brick by Brick had also accrued interest of £27.3million.
Yet in its first five years of operation, Brick by Brick managed to deliver a grand total of just three council flats.
The company’s plans to deliver affordable housing flopped when the company discovered they had failed to register themselves as a recognised supplier of shared ownership homes- no mortgage-provider would lend to BxB’s prospective house-buyers.
The company has never made any profit and has broken most, if not all, of its covenants and loan agreements with the council. It has been so badly run that when outside consultants were called in to pore over its books last year, they were horrified to discover that the multi-million-pound enterprise had no finance director and few proper financial controls.
When quizzed by a committee of councillors in February 2020, the company chief exec, Negrini-appointee Colm Lacey, could not even manage to answer simple questions of fact, such as accurately report how many houses his company had sold.
Brick by Brick was due to repay £36million in loans and interest to the council in 2019-2020, but it failed to return a penny. This was given as a major reason for the council having to issue a Section 114 notice last November, effectively admitting it was broke, with a £66million budget overspend on the year.
Since Chris Buss was brought in to Croydon last year as a consultant, more recently acting as the borough’s interim financial exec director, it has been his onerous task to unravel the various strands of Brick by Brick’s finances. It is fair to say he was unimpressed with what he discovered, and since late last year has been on a mission to find a buyer for the basket-case development company.
With the council in hock to the government to the tune of £120million and desperately trying to balance its books, a quick sale of part-completed Brick by Brick buildings and undeveloped sites has an obvious appeal. But a firesale of BxB properties being made by a distressed seller also risks the borough’s Council Tax-payers losing huge sums.
In one secret report to the council, Buss and management consultants PwC concluded that the borough could lose at least £100million from the £223million it is owed by Brick by Brick in loans and unpaid interest repayments.
In April, Buss told a meeting of the council, “If I was a betting man, I suspect that a substantial proportion of the interest owed by Brick by Brick to the council will be paid back.
“How much exactly? I can’t put a figure on it, but I would hope that the vast majority of that will be repaid.”
Buss must have a magic wand. It appears he has managed to find a eager buyer for Brick by Brick, without having the break up the company’s sites. None of the detail of his discussions over the sale have ever been made public, being restricted to Part B, secret sessions of council meetings. But it is understood that, on his own recommendation, Buss and the council never approached any alternative potential buyers, and that Urban Splash has been their only bidder.
This has raised suspicions. Some council sources suspect that Urban Splash – a development company with its own chequered business history, including broken loan covenants and multi-million bail-outs – might actually be acting as a front for banks and other investors, keen to snap up some lucrative London property deals on the cheap.
Property Week reports that, “Urban Splash would acquire all of Brick by Brick’s existing assets and its development pipeline.” This would include any sites which have already been granted planning permission, but does not include the 420-home site at College Green – it alone is potentially worth £150million in flat sales. The bankrupt council halted that land transfer to its loss-making housing company.
Brick by Brick does have contractors currently working on 20 unfinished developments around the borough, which are expected to complete 429 homes by October this year.
Sources at the council believe that the sale to Urban Splash may also include agreements for Croydon to buy back from the developers dozens of newly built homes, for use as social housing.
Such an arrangement would see the borough’s Council Tax-payers effectively paying for the homes for a third time: they paid first through the below-true-value sale of sites to Brick by Brick, including six that were sold for £1 each; then, second, they paid in the loans handed over to BxB to develop the properties; and now a third time, they will be paying to buy back some of the completed homes, in a little sweetener that has helped to clinch the deal with Urban Splash.
Then there is the not-so-small matter of the botched Fairfield Halls refurbishment. The £30million budget, two-year project was handed to Brick by Brick, who mismanaged things so badly that it over-ran by nearly two years and they spent £73million. And they still haven’t managed to complete the works.
That £43million overspend is sitting on Brick by Brick’s balance sheet. BxB had hoped to pay it off through the sale of the flats they were going to build at College Green.
Now, to make any sale of Brick by Brick acceptable to a canny northern developer, Katharine Street sources say that the council will need to stump up the cash to pay off the Fairfield Halls overspend.
Inside Croydon approached Urban Splash for comment, but had received no response by the time of publication.
- Read Chris Buss’s full report on the future of Brick by Brick
- Check out the list of schemes under construction by Brick by Brick
- The council’s list of sites that will not be transferred to Brick by Brick
Read more: Council set to take £100m hit as it winds down Brick by Brick
Read more: Brick by Brick has paid nothing to council
Read more: ‘An accountant could have foreseen this more than a year ago’
Read more: Conflicts of interest, incomplete contracts, unlawful payments – how the Fairfield Halls refurbishment cost Croydon £50m-plus
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