CROYDON IN CRISIS: Council Tax-payers haven’t finished coughing up for the borough’s failed housing developers.
EXCLUSIVE by STEVEN DOWNES
The cashflow crisis continues at Brick by Brick, as its sales of new-built homes has failed to cover its operating costs.
As a consequence, Brick by Brick is to get another £10million loan from Croydon’s cash-strapped council. Without that cash injection, according to one of the council’s most senior officials, Brick by Brick “could be forced into insolvency, destroying any value that may be in the company”.
This latest money is supposed to tied over the loss-making house-builders until the sweetheart deal with prospective buyers Urban Splash goes through.
That’s according to an official report going before Monday’s council cabinet meeting.
The recommendation is being made by Chris Buss, the council’s interim finance director who has overseen negotiations with Urban Splash.
The £10million is the second such loan to be made to Brick by Brick in just three months, and is necessary, according to Buss’s report, “due to possible delays with forecast sales receipts” – meaning that the council’s house-building company has failed to sell those homes which it has managed to complete.
Brick by Brick – the council-owned company that was operating without a finance director – has borrowed more than £200million from Croydon Council since it was formed in 2015. It has failed to repay a penny.
The company’s failure to deliver £36million in loan repayments, interest and any profits from property sales was given as a major reason for Croydon Council having to issue a Section 114 notice last November – effectively admitting it was bankrupt. Croydon is only the second council in England to issue a S114 notice in 20 years.
The council is now trying to cut its losses with Brick by Brick by finding a buyer to take on the development business. As Inside Croydon reported a week ago, it has been in negotiations with a sole and preferred bidder, Manchester-based Urban Splash.
And as Inside Croydon revealed exclusively, to sweeten the deal for Urban Splash, Buss is recommending to the council cabinet on Monday that £69million of cost over-runs incurred by Brick by Brick in its bungled refurbishment of the Fairfield Halls is being wiped off the company’s balance sheet and taken on by the council.
Buss’s report asks the cabinet to, “Agree that the consolidated loan agreement shall, if required, be varied to include a further loan drawdown amount of up to £10million to cover additional working capital, in the event that this is required by Brick by Brick due to possible delays with forecast sales receipts”.
Helpfully, Buss provides a parenthetical note, just in case any of the borough’s councillors can’t remember what he got them to agree three months ago: “this is in addition to the £9.99million agreed by cabinet in February 2021”.
The additional loan, Buss’s recommendation states, is “to address immediate operational needs”.
Elsewhere in his report, Buss explains, “The February report placed a limit on the amount of additional working capital that the council could loan to Brick by Brick of £9.99million.
“This limit was based on the assumption that Brick by Brick would be able to recycle sales income from both affordable and market-priced house sales. This limit has been reached as anticipated in the February report. However, anticipated sales of both private and affordable units have not been made in line with forecasted revenues, due in part to the deferral of the final decision on the purchase of affordable rent units discussed in this paper and as such it is possible that the company will need further funds for working capital.
“At present there is no mechanism for increasing this limit. Without working capital the company will not be able to function and the company could be forced into insolvency destroying any value that may be in the company. In the light of this it is recommended that further working capital funds be provided.”
Under Brick by Brick’s chief executive, former council official Colm Lacey, progress on all of the company’s sites has been tortuously slow.
A year ago, before anyone at Croydon Council would dare admit that there was any crisis with the failed housing developer, Inside Croydon reported that Brick by Brick had missed its sales targets by a stonking 83 per cent.
The Montpelier Road and Kingsdown Avenue site in Purley is a case in point.
The council handed over what was previously public open green space to Brick by Brick to build on more than four years ago. Planning permission was granted by Croydon Council in April 2017.
The chair of the planning committee then was Labour councillor Paul Scott. His wife, Alison Butler, was the Labour-controlled council’s deputy leader and cabinet member for housing.
She greeted the news of the first tranche of Brick by Brick sites all being granted planning permission by her old man’s committee with an official press release, stating, “Croydon is in desperate need of good quality, affordable housing and this innovative approach will enable many of our residents who are homeless or stuck in temporary accommodation the chance to move into affordable homes of their own.”
The Montpelier and Kingsdown site was supposed to deliver 34 new homes by 2019.
Yet it has only been this week – two years late – that Brick by Brick has released some of the properties there for sale: 17 houses and 11 flats, with the government subsidy for housing developers, Help to Buy, available.
Six flats, intended for the highly unaffordable shared ownership scheme, are still not finished.
A three-bed house in the development is on offer for £550,000. Hardly the “affordable homes” that were promised by Butler and Scott.
It is looking increasingly likely that the Butler and Scott-driven Brick by Brick misadventure will end up costing the people of Croydon at least £100million in money sunk into a black hole, never to be recovered, even once the benighted company is sold off.
And on the Montpelier and Kingsdown site, there is not a single social rent or council home to be delivered.
Butler and Scott remain as Croydon councillors.
Read more: Council to pick up £69.2m costs of failed Fairfield Halls refurb
Read more: Conflicts of interest, incomplete contracts, unlawful payments – how the Fairfield Halls refurbishment cost Croydon £50m-plus
Read more: Making a Splash: big bailouts behind Brick by Brick’s buyers
Read more: ‘An accountant could have foreseen this more than a year ago’
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