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Street strife

Where Glasgow's High Street slithers between red sandstone tenements on the way to the cathedral, there are some very disgruntled shopkeepers.

From left: Samantha Cooper and Andrew Moloney in their shop, Ladywell Crystals and Healing; empty High Street properties; Dan Taylor outside his cafe in Duke StreetPhotographs: James Galloway, Mark Mainz, Stewart Attwood
From left: Samantha Cooper and Andrew Moloney in their shop, Ladywell Crystals and Healing; empty High Street properties; Dan Taylor outside his cafe in Duke StreetPhotographs: James Galloway, Mark Mainz, Stewart Attwood

Their reasons vary, but have a common cause: City Property (CP)

Since Glasgow City Council set up this arms-length agency in 2010 to manage its portfolio of about 1500 commercial properties, it has become a bete noire for many small retailers. While they claim it is making a mockery of the city's economic development strategy, others applaud its private-sector-assisted efficiency.

Indeed, support for the move is such that North Lanarkshire Council is now duplicating the cash-raising policy and other Scottish local authorities are looking on as they weigh their options in an age of depleting finances. Glasgow's property experiment could be replicated, or adapted, throughout Scotland.

The city's commercial portfolio is a rag-bag of assets, ranging from the Adelphi Conference Centre in the Gorbals and Film City Glasgow in the former Govan Town Hall through to hundreds of small outlets in ex-council tenements.

The deal on which CP was founded might have been partly prompted by the financial crisis, but it was based on much the same jam-today logic of the preceding years. City Property "paid" for the transfer of the properties from the council by handing over £120 million raised by mortgaging the portfolio to Barclays Bank.

The money was used to finance the council's £30m budget shortfall, reduce its pension deficit and pay the early retirement packages of a swathe of council employees. Among them was former economic development boss Steve Inch, who also oversaw the Barclays deal. As the council confirmed at the time, that deal would cost an estimated £80m in interest payments over 20 years. This relatively modest price was deemed acceptable enough for the SNP opposition at the City Chambers to offer no objection.

CP hired property management firm Ryden, through a competitive tender, to look after the portfolio. This was necessary because it didn't have the expertise to do it in-house, since many of the experienced officials had opted for a pay-off.

To fulfil the council's goal of paying off the loan in the optimum time to ensure lower interest payments, it would be fair to assume that Ryden was tasked with raising as much money from the portfolio as possible.

The accounts would suggest it has been doing rather a good job. The council forecast that CP would raise £14.7m a year in rent. This had steadily climbed by the year ended March 2013 to £17.2m. This helps to explain why capital loan repayments to Barclays have been rising each year, from £3.5m in 2010-11 to £3.9m in 2012/13.

The portfolio is also being favourably revalued by the specialists at CP. By the time of the most recent accounts, with the process two-thirds complete, its value had been pushed up £20m to £140m. If the remaining one-third is getting the same kind of percentage hike, that would add another £10m when this year's accounts are filed.

Asked what lies behind this upgrade in value, the council's opaque response was that CP "acquired a large and diverse property portfolio that contains many investment opportunities".

Whatever this might mean, relations with many tenants are at odds with this financial performance. Some say they are being treated on more harshly commercial terms than when the council was their direct landlord.

Common complaints include stiff rental hikes when terms come up for renegotiation, and tough bargaining over new lets.

As Green councillor Nina Baker points out, the latter issue is virtually an inevitable consequence of mortgaging the portfolio.

"It's because their mortgage is based on the potential rental income on the properties," she said. "If the properties are rented out for less, it would undercut the value of the portfolio and the mortgage would be withdrawn."

CP says the approach to rental levels has not changed since it took over, insisting that it has "the same flexibility over rental levels as the council".

It says that the level of occupancy is the same as when it took over four years ago, suggesting that the 13% (£2m) rise in rental income is mainly down to charging the same number of tenants more.

To be fair to CP, the rise is almost exactly in line with the rate of RPI inflation. However, one of the key gripes has been that wages have not kept up with that rate.

CP says: "We do not believe that City Property has implemented hefty rental hikes. Rent reviews are based on current market evidence and we remain committed to finding affordable solutions for all of our tenants.

"City Property recognises the difficult trading conditions faced by businesses and endeavours to provide support where possible. Tenants are encouraged to contact City Property's managing agents if they find themselves facing financial difficulty."

Beyond the issue of rents, there have also been complaints about poor service. Dan Taylor, who set up the McCune Smith cafe on Duke Street last year, claims to have had to wait six months between the point where he reached an agreement with Ryden and when he received a lease to sign. He says this delay cost him £400 in extra legal fees.

He has just been informed by Ryden that scaffolding will be erected outside his premises in order for structural building repairs to be done between now and 2017. He hasn't yet been told how much this will cost, but other shopkeepers in the area have received bills for about £30,000. He has been told he will receive a 50% rebate, but still feels aggrieved.

"I specifically asked before I signed the lease [in 2011], are there any plans to do any of this work? They said not for the foreseeable future. I can't believe they don't know what they are going to do a couple of years later. I couldn't express more hatred for them if I tried."

Samantha Cooper runs two New Age shops on High Street and also runs the local merchants' association set up last year to challenge CP/Ryden's approach. She claims a number of businesses in nearby Saltmarket have been forced to close because repairs were going ahead. She is in dispute with her landlord over who will pay for a dry rot problem in one of her shops, and has refused to sign a new lease as a result. She claims nine businesses in her street have closed on the back of rental hikes.

One Saltmarket tenant who says she has also experienced difficulties with the same landlords is Emma Mortimore of Zuzu Consulting. Her marketing agency is based in Edinburgh, but she set up a pop-up photographic gallery and exhibition space last May to tie in with the Stone Roses concert at nearby Glasgow Green.

"They doubled what they were asking in rent from our initial inquiry," she says. "They kept saying that their client had insisted they change the price. As a result we only did one pop-up when we had planned to do two.

"They were very slow. They could never show us anything until a week later. And it was proving impossible to reach an agreement, until in the end we got in touch with [deputy Scottish Labour leader] Anas Sarwar and that made a big difference. But I didn't find many people who had a good word to say about them."

Complaints from tenants are not limited to High Street. An anonymous tenant in the west end said he was told by CP that he would face a rental hike because it was time to renegotiate his lease, before this was retracted when it turned out that he had signed a new lease shortly before CP had become his landlord.

He says most of the shops in his block are lying empty and the problem has become worse during the past few years. "They are not flexible," he says. "The rents are too high."

Sandra White, the SNP MSP for Glasgow Kelvin, estimates that she has received between 20 and 30 complaints from CP tenants over these kinds of issues.

As well as the areas already mentioned, she has heard from people renting in Cathedral Street near the city bus station and further east, closer to the Barrowlands.

White says CP and Ryden have "got to give tenants more leeway".

She says: "It's far better having a shop that's operating and reducing their rent. It's either that or it's lying empty. It looks like Ryden and CP are showing a lack of compassion. At the very least the council should have a meeting to discuss this."

Councillor Baker suggests the approach to tenants may have relaxed slightly in recent months, but says it is still an "uphill struggle".

With business groups like the Federation of Small Businesses and Glasgow Chamber of Commerce now actively looking into the situation, CP could come under more pressure to be more flexible still. Ryden's five-year contract comes up for renewal next year.

CP does admit to one failing ... its communication. A spokesman says: "We are aware there have been some issues in regards to communicating with tenants in the past. However, we are working strenuously to improve upon this.

"Both Ryden and City Property have introduced a variety of measures to improve this including meetings with individual tenants, group meetings, tenant questionnaires and tenant guides."

In the middle of this, North Lanarkshire Council announced in October that it is putting its 975-strong commercial property portfolio into newly created NL Property. It too has done a mortgage deal with Barclays, this time for £45m. It did not want to put up anyone to talk about it at this stage.

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