Woking £400m Victoria Square loan tops tables

Woking Council is borrowing £400m of low interest public funds to invest in its Victoria Square regeneration.

The Surrey authority is seen as a pioneer in entrepreneurial property investment by local councils, after borrowing £68m at a low rate of interest in 2010 to buy the 230,000 sq ft Wolsey Place shopping centre.

The latest loan from the Public Works Loans Board would dwarf Spelthorne Borough Council’s recent borrow of £320m to buy BP Sunbury’s office campus in a sale and leaseback deal, although it would be drawn down in smaller £100m tranches.

It would significantly add to the £1bn councils have spent on property this year, and propel Woking to the top of the list of public sector borrowers from the PWLB since 2014. Woking is heading towards borrowing £1bn, with £450m of debts to the PWLB in total, and another £200m investment on the way for its affordable housing subsidiary Thameswey Housing.

The £420m Victoria Square project will connect Wolsey Place and the Peacock Shopping Centre. It will be delivered by Bandstand Square Developments, a joint venture between Moyallen, Woking and Surrey County Council.

Woking chief executive Ray Morgan and leader John Kingsbury said the council’s primary interest is to secure the future of Woking, although recurrent income was a benefit with public sector funding cuts and the amount of devolved business rates it will be able to keep in the future a net deficit.

Morgan said: “A lot of people asked us after the Wolsey shopping centre buy, ‘How did you do that?’ We did not do this for a quick return; we looked for a long-term return.”

Morgan said the PWLB was not concerned about the use of loans, saying “it doesn’t care – at the moment”.

However, he added: “The thing that has raised a few eyebrows is that Spelthorne has done it for the income. What bothers me about that is, will the government go and say, ‘We don’t want people doing it like that’? We don’t know what the government is going to say post-Brexit.”

Asked about the risks of borrowing, he said: “Not being able to pay it back. That’s always the big ask for anything we do. You have got to be satisfied you can meet the financing costs.”

But he said financial modelling done by EY showed the council could afford the costs today and generate value in the future. The council could also refinance after three years, and has estimated the revenue from the Victoria Square shops, residences and hotel would “more than pay the interest”.

Victoria Square: the details

What Victoria Square’s £400m will pay for:

125,000 sq ft of shops anchored by Marks & Spencer with another prelet to Boots, a 190-bedroom four-star hotel in a 21-storey tower, and 392 build-to rent flats in two towers of 30 and 34 storeys
Land assembly and relocation of fire station £30m
Design, project management, legal and letting fees £75m
Tenant incentives £15m
Interest £30m
Construction £30m

How Woking has led the way:

Alan Harris, development consultancy partner at Montagu Evans, said the council had a very proactive town centre management approach with partner Moyallen. He said: “They took the view that the consumer doesn’t care who owns what, but better to manage jointly.”

Purchase of Wolsey Place shopping centre in 2010 – borrowing £68m on a 4.43% interest rate over 50 years – created £1.5m annual profit
Formed a joint management approach with Moyallen, which owns the neighbouring Peacock Centre
Has a commercial housing company – Thameswey – and an energy company generating heat and power for offices and businesses.