Property Investment Portfolio and Energy project: income and efficiency opportunities

Rother District Council (RDC) wished to receive advice from a productivity expert on its Property Investment Portfolio and Energy (PIPE) project, seeking to increase income and create efficiencies through: better use of existing investment assets; new investment opportunities, and; renewable energy installation and energy efficiency measures. This case study forms part of our productivity experts resource.

Efficiency and income generation

Overall, the PIPE project aims to support the achievement of a £1 million revenue income/saving over the next three years (2018/19 - 2020/21). This is part of the Rother 2020 wider corporate programme of sustainability and efficiency projects, including increase income; prioritisation of services; lean business process reviews; demand management; and organisational form and culture. 

The challenge

Property investment: RDC created a Property Investment Panel (PIP) in early 2018 made up of senior officers and members. The role of the PIP is to consider recommendations for changes to existing investment properties in the council’s portfolio alongside the purchase of new properties. This element of the PIPE project was to critically review the entire existing investment portfolio and understand the current commercial market to ensure that recommendations were sound and gained members’ approval. Having the time to take on a review of this scale, whilst continuing with operational duties in estates and asset management, presented a challenge considering the limited officer resource at RDC (two officers).

Renewable Energy and Energy Efficiency: Over the last 10 years, RDC has periodically investigated the opportunities for renewable energy, specifically solar panel installation on operational buildings. However, with the capital costs at the time it had not previously been financially viable. Over the last five years, the cost of solar panels have reduced, and with the end of the Government’s Feed in Tariff (FIT) incentive coming to an end in by 31 March 2019, the capital outlay is set to reduce even further. The challenge for this element of the project was to fully understand the process of solar panel installation, to investigate financial viability and to move forward, subject to the business case, to pilot at least two properties before the FIT incentive ends.

The solution

Property investment: The solution for this element of the project was to appoint an external expert to review RDC’s investment property portfolio and provide us with advice and a final report that would be used to guide the approach and decision making. Mark Bradbury MRICS FRSA FIoEE was appointed. Mark is a Chartered Surveyor (MRICS) with over 30 years’ experience in Development and Asset Management. Mark is a regular speaker on Property Investment Strategies at APSE events and case studies have featured in publications by APSE and CIPFA.

The key project milestones included:

  • review of the RDC Investment Property Portfolio Brochure
  • desktop analysis of existing assets to identify opportunities
  • site visits to those assets with opportunity for development
  • market research
  • draft report submitted to RDC for officer review and comment
  • final report submitted to RDC.

The final report gave specific advice in the following categories:

  • investment market review
    • national perspective
    • local perspective
  • regulatory framework (advice on statutory regulations for LAs)
  • existing Rother portfolio overview
  • strategy recommendations;
    • consider diversifying into areas such as retail, hotels, residential, specialty residential and new industrial development
  • property recommendations (for each of the properties in RDC current investment asset portfolio)
    • retain
    • retain but review at end of current lease
    • development potential
    • opportunities for sale.

Renewable Energy and Energy Efficiency: The solution for this element of the project was to appoint an external expert to review RDC’s operational and investment properties, alongside development projects, to provide officers with guidance on renewable energy solutions and energy efficiency measures. RDC appointed Alan Asbury of CLS Energy Limited. Alan has been an Energy Manager for more than 12 years and is a Chartered Energy Manager, Chartered Member of the Institute of Transport and Logistics, Chartered Environmentalist and Chartered Wastes Manager. Alan was elected to Fellowship of the Energy Institute on 5th September 2018 (FEI).

The key project milestones included:

  • review of the council’s energy consumption for all operational assets
  • RDC Investment Property Portfolio Brochure for investment assets
  • desktop energy analysis of existing operational assets
  • site visits
  • draft report submitted to RDC for officer review and commentf
  • final report submitted to RDC with debrief meeting and post-project advice and networking.

The final report gave specific advice in the following categories:

  • Proposed work for phase 1 sites:
    • energy data and analysis
    • solar PV assessments
    • early considerations (associated requirements for solar installations)
    • the Feed in Tariff process
    • list of deemed sites (other sites that provide solar opportunity)
    • individual deemed site analysis (capital, payback, FIT, Deemed Export, ROI, IRR, etc)
    • business rates and solar PVs
    • alternative scenarios for deemed sites
    • way forward and next steps
  • Phase 2 sites – RDC owned, leased to others
    • site analysis as per phase 1
  • district heating – opportunity on development sites in progress
  • general advice on energy efficiency, including funding opportunities.

The impact         

Property investment: This exercise has provided reassurance that we’re maximising our portfolio and that the RDC Asset Management Strategy was broadly correct - we’re not missing opportunities. RDC officers were already considering/implementing some of the recommendations, but Mark’s advice has helped focus the priorities. This independent external advice has provided reassurance to the RDC Property Investment Panel that we have the in-house expertise to take on the programme of major investment in existing and new assets. Following Mark Bradbury’s recommendations, officers have gone through RDC investment portfolio and updated this with recommendations to the PIP. RDC will be reviewing the draft Investment Property Brochure produced in 2017 which will act as a useful template to update on an annual basis to provide an overview to members on the current investment property portfolio. The expert advice has helped to focus what information should be set out in the brochure. With regard to short term property investment income, investments have been made in local properties which will realise £240,000 revenue income per annum.

Renewable Energy and Energy Efficiency: The short term impact of Alan Asbury’s advice is that the PIPE team was successful in gaining member support in investment in solar panels on two operational properties as a pilot. This was agreed at the Cabinet meeting held 5 November 2018. The financial return, which includes FIT and Deemed Export payment alongside savings from not importing from the grid, will be £10,000 per annum (combined), subject to planning conditions and building surveys. This is 12.11 per cent net ROI (average yield over 20 years) and will be achieved from 1 April 2019.

The energy efficiency advice is being taken up as lean business process review and demand management by the in-house teams.

Working with CLS Energy has provided officers with a full understanding of the options and related processes for renewable energy considerations, which is not an area that the council had specific knowledge of prior to this project. The networking opportunities provided through Alan Asbury have already helped to identify areas that RDC could investigate for energy efficiency solutions.

How is the new approach being sustained?

Property investment: There are other properties identified as investment opportunities which we are now in a position to move quickly on. RDC Full Council agreed to borrow £34 million to invest in order to create revenue income. To put this into the longer term context, if all investment properties realised an average of 5 per cent, net ROI, this would generate £1.7 million.

Mark Bradbury’s report will be used to guide officers in their consideration of individual properties and to support recommendations made to the Property Investment Panel. It will also be used to review existing investment assets and the opportunities to improve revenue income on those.

Renewable Energy and Energy Efficiency: Once the solar panel pilot has been delivered and reviewed, it is likely that RDC will pursue the other properties that have been identified as appropriate for consideration.

In the short to medium term, the in-house lean process review and demand management teams will be looking at Alan’s energy efficiency recommendations as a project to review and revise internal policies and procedures, including the use of heating and lighting and corporate travel arrangements. There will be a need to ‘nudge’ employees using behavioural insights into supporting the delivery of energy efficiency measures and responsible travel. RDC will also be investigating opportunities for electric vehicle infrastructure.

Lessons learned

We chose to appoint separate experts for the two elements of the PIPE project. Whilst this meant some additional administration was required in the short term, it is felt that the benefit it has brought to the organisation in terms of the level of detail and specifically tailored advice received, outweighed the small increased impact on officer time in the short term. The experts liaised with each other on the property portfolio as required and officers felt that we received exceptional value for money. The detail and content in both reports will be used for at least the next three to five years, contributing towards the corporate vision of financial sustainability and organisational efficiency.

Contacts

Cheryl Poole
Corporate Programme and Business Improvement Officer
cheryl.poole@rother.gov.uk

Grace Abel
LGA Advisor
grace.abel@local.gov.uk

Links to relevant documents