黑洞社区

The chief executive of Croydon council-owned housing development company Brick By Brick has said he is in talks with potential buyers for the business in case the beleaguered local authority decides to sell it.

The housing company, set up by the council in 2016, has been hit by the fallout from the financial problems engulfing it, which culminated last week in the announcement by government of a rapid review into its governance and culture.

A 鈥減ublic interest鈥� report into the council by auditor Grant Thornton late last month sharply criticised Brick By Brick, which is projected to borrow up to 拢249m from the south London local authority to fund its development programme, for failing to pay back loans when initially expected.

Grant Thornton recommended the council, the sole shareholder in the developer, reconsider lending any further money to Brick by Brick, and called for it to 鈥渞eview and reconsider鈥� its equity investment in the firm.

In an exclusive interview with 黑洞社区鈥檚 sister title Housing Today, Colm Lacey (pictured) said the report鈥檚 findings left him with no choice but to explore the potential for a future outside of council ownership and not reliant on council debt funding.

He said initial soundings had shown there 鈥渋s interest in the market鈥� from the private sector in buying the firm, which has so far built 283 homes.

While Lacey said he couldn鈥檛 give any detail around specific discussions that are taking place, Housing Today understands there have been at least two expressions of interest from the private sector in acquiring the developer.

Lacey denied Brick By Brick had missed debt repayment deadlines 鈥� claiming that all changes had been agreed by the council which approved its annual business plans 鈥� and said he was also exploring private sector debt funding for the firm.

According to its latest business plan, Brick By Brick is expecting to receive 拢108m in debt funding from the council to deliver its development programme next year 鈥� but this is now in doubt.

Lacey said: 鈥淲e are exploring options with funders 鈥� as a responsible chief executive I have to explore what happens if Croydon decides it doesn鈥檛 want to fund us, or if it wants to change ownership.

鈥淭here is interest in the market, people are making interested noises. My role is to ensure we can continue to operate if we have different funding in future.

鈥淚 think we鈥檇 appeal to lots of potential buyers 鈥� private equity, housebuilders, housing associations.鈥�

He said conversations were at a 鈥渞eally early stage鈥� and that for the moment the firm remained wholly owned by the council.

Brick By Brick has built 283 homes on 15 initial sites and says it brought in revenue of 拢23m in 2019/20, though audited accounts have not yet been published.

It has a further 700 homes in active development and is also midway through bringing forward a second wave of schemes, with planning applications for 32 separate sites under consideration equating to between 600 and 700 further homes.

Schemes it is working on include a 25-storey mixed-use tower designed by Pitman Tozer that will be built on a former car park in the middle of the town.

If council funding is halted without Brick By Brick having alternative funding in place, this would put the delivery of its pipeline of schemes at risk, jeopardising promised returns to Croydon.

Lacey admitted that current projections showed the firm repaying its debt to Croydon later than originally envisaged but said that this had been explicitly agreed to by the council. 鈥淭here have been delays to projects but I鈥檇 expect delays to projects as we deliver very complex small sites, and we鈥檙e delivering 30 at once, which takes a huge amount of resource.鈥�

Lacey said the firm鈥檚 draft accounts, currently awaiting sign-off, show the firm has earned enough to make its first repayments to the council this year, of 拢14m, and has provided a further 拢6m boost to council land value, as well as turning its first profit, of 拢600,000.

But he said the crisis at the council was making it hard to deliver its current programme, because of the need for council decisions over planning applications, other build permits, funding and land. He said delays in council decisions this year had already reduced Brick By Brick鈥檚 ability to deliver on its busines plan targets this year by up to 40%.

The developer鈥檚 2020/21 business plan had predicted it would make a profit of 拢7.5m and pay 拢60m of debt back to the council.

鈥淚t鈥檚 [council delays] having a really huge impact on delivery already. But if it doesn鈥檛 get sorted quickly then it will have a much more significant impact,鈥� he said. 鈥淲e haven鈥檛 paid debt back up to now because we haven鈥檛 been supposed to. But we鈥檝e shown how the money will be paid back and we see ourselves as potentially part of the solution [to the council鈥檚 funding problems].鈥�

While he said he welcomed the commitment by the council and government to rapidly addressing the crisis, he warned: 鈥淲e really need answers now, as we need to make strategic decisions about what will happen over the next 2-3 years.鈥�

The council has scheduled a meeting for 30 November at which it expects to approve an initial action plan to find a way forward following the Grant Thornton report. This is expected to include findings from a review of Croydon鈥檚 suite of wholly-owned companies, including Brick By Brick, specifically commissioned from auditor PwC.

The separate rapid review of the council commissioned last week by the government is also set to report at the end of the month.

The housing ministry last week appointed former Newham council chief executive David Wood to undertake the review into the council鈥檚 鈥済overnance, culture and management of risk鈥�, with communities secretary Robert Jenrick describing the situation at the council as 鈥渄eeply concerning and completely unacceptable鈥�.

Last week鈥檚 report from Grant Thornton castigated the Labour-run council for 鈥渃ollective corporate blindness to both the seriousness of the financial position and the urgency with which actions needed to be taken鈥� after a 拢65m gap between available funding and commitments was identified over the summer in the council鈥檚 2020/21 budget.

It said the financial position at the council had been worsened by 拢545m of borrowing in recent years to invest in companies, including Brick By Brick, along with property.

Croydon鈥檚 leader Tony Newman resigned last month as a result of the problems, with councillor Hamida Ali now in charge. Ali last week apologised for the financial crisis and announced the PwC review into the companies it owns.