Listed property company approaches councils over local government REIT

A listed property company has approached a number of local authorities in London and the South East over the future of their property portfolios, in a move that could eventually lead to the setting up of the first local government real estate investment trust.

Local Shopping REIT (LSR) has appointed King Sturge Finance to advise on the project, which is likely to focus initially on retail property.

Chris Pratt, managing partner of King Sturge Finance, told Local Government Lawyer: “It’s possible that LSR will purchase portfolios, transfer the capital receipt, get rid of the management obligation, generally bring better quality management to the table etc.

“Obviously some local authorities are more worried about retaining some elements of stewardship, whether that is rent setting, tenant nominations or whatever.”

To help with that, Pratt said, King Sturge Finance has also been promoting a joint venture approach. This would see the transfer of the property portfolio into a 50:50 deadlock partnership that is half owned by LSR and half retained by the local authority.

“In that case they [the councils] still get a chunky capital receipt but they also continue to receive 50% of the rents and they have a say in what goes on,” Pratt added. “If it works as a product, the next step might be to unitise it out into a REIT.”

He said that one deal with an unnamed authority is at a more advanced stage of options appraisal, “without any detailed numbers it’s fair to say”.

The initial approaches have been made in London and the South East, but Pratt said a couple of approaches in Scotland and one in the South West were also at early stages.

He said: “Everyone in local government is looking at ways of either raising finance or doing things that they already do more efficiently. A deal of this nature could be put together in a matter of months. You have got to decide what form of procurement, if any, it needs to go through and things like that, and there are different ways of doing that.

“What we are seeing with this and any other initiative is that local authorities are out saying: ‘How does this work? Will it work for us? Is it better than retaining it or selling it?’”