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MoD set to sell off property in its battle to balance the books

The Ministry of Defence is planning a major UK-wide property disposal programme as part of efforts to shore up its embattled budget, according to trade union sources.

Following last week’s report that the MoD plans a £50 million sale and leaseback of Kentigern House, the 1700-strong personnel office in the Broomielaw area of Glasgow, the move is said to be an early salvo in a much bigger programme that could involve selling-off everything from army careers offices to fuel depots to barracks and bases.

Ian Fraser, West of Scotland branch secretary for the Public and Commercial Services Union, said that a team had been assembled at the Defence Estates offices in Rosyth to co-ordinate so-called “Project Sale”, which will see many more properties sold and then leased back by their new owners to the MoD where appropriate.

The former top secret RAF airbase at Machrihanish on the Kintyre peninsula was sold earlier this year, while union bosses have been told that the Navy Buildings at Greenock, which houses marines, amphibious police and coastguards, will close in March 2011 and also be sold. There had also been plans to close a missile testing range spread across the Uists, but they were recently abandoned in the face of local protests, saving 125 jobs.

Fraser said: “We have been told by management that Kentigern is just the first. The MoD is one of the biggest landowners in Europe – they are waiting to see how it goes and will then start going for other sites. “They will sell anything they can sell.” Such a project would certainly make sense given the MoD budget is already thought to be running at a £1.5 billion deficit and is widely tipped to bear the brunt of public spending cuts regardless of which party wins the next general election.

This has seen concerns mounting over the £4bn contract to build two new aircraft carriers on the Clyde after it was identified earlier this month by shadow chancellor George Osborne as one of three leading defence projects along with the new Eurofighter and the A400M military transport aircraft that would be in jeopardy if the Conservatives win the next election. There are also plans to cut the defence research budget by £100m from the next financial year and the civilian wing of the ministry is also coming under fire.

Fraser said that the unions were opposed to both the Kentigern House sale and any further sale and leaseback deals on the grounds that they will squeeze MoD budgets in the long-run. With Kentigern House, for instance, the cost to the ministry over the first 20 years of any deal is set to be at least £70m.

He said there were also concerns that the move would be the start of the MoD withdrawing from Kentigern, amid union consultations with management about several small departments moving to England, but other sources countered that a 20-year lease was a strong sign of its commitment to the site.

Fraser said: “If this is such good value for the public purse, why has it taken 28 years [since the Glasgow offices were completed] to think of it?

“We think that the best security for Kentigern House is to keep it in the MoD and continue to own the building.”

A spokeswoman for the MoD denied that there was a fully-developed project to sell swathes of the estate, but said: “We regularly look at some of our sites for sale and leaseback opportunities. At present we are only considering this for Kentigern House and Abbey Wood in Bristol [the ministry’s procurement headquarters].

“Any other similar moves will depend on whether they are commercially viable. I can’t give a percentage of the proportion of the estate that we want to sell because it doesn’t exist.”

She added: “The proposed sale and leaseback at Kentigern House is a normal commercial arrangement to realise capital from the estate. It’s an attractive investment opportunity, given the MoD’s covenant as a long-term tenant, and has generated significant interest from financial institutions.”

John McBain, a commercial property specialist at Jones Lang LaSalle said that the MoD’s sale of its stake in the Skye Bridge showed that there could be a market for properties that did not fit into standard agency categories.

He said: “It depends on how you structure a deal. If you structure it so that there might be a return, it might be attractive, but there is the issue of what an investor does with it at the end of the term.”

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