GLASGOW's City Parking – wholly owned by the council – is now sitting in negative equity.

The firm today admitted its car parks are worth half as much as the loan it took out to buy them.

The arm's-length external organisation, or Aleo, has been in the red under the weight of its mortgage ever since it was created by former city leader Steven Purcell in 2007.

Now a revaluation has revealed that it could not sell off the car parks – including major city-centre assets such as the parking facilities at Cambridge Street and Concert Square – to pay off the loan.

The Evening Times understands City Parking property portfolio was initially valued at £36million.

It is now worth £16m in what city insiders said reflected the steep industry-wide drop in all car park values as the recession scared shoppers away.

A council spokesman last night stressed that the company was no worse off than ordinary householders who find themselves in negative equity - with a mortgage worth more than their homes.

He said: "The value of car parks across the UK has been downgraded significantly in the last five years. City Parking is not immune to that and is effectively facing a negative equity situation.

"As many people who have experienced this domestically will understand; it only really has an impact if you intend to sell the property, which we don't.

"It has no cash effect on the business, which reported an operating surplus at year end, or the council."

However, the very fact City Parking has plunged so deeply in to negative equity raises questions about how its car parks came to be valued so highly.

Glasgow City Council "sold" the car parks and other properties to City Parking.

The city then took a capital receipt from the transaction and left its Aleo to make payments on the loan, which is on what one insider called "sweet terms you would never get today".

However, the deal, one of several similar schemes orchestrated under Mr Purcell, went down just as the bottom fell out of the financial markets and the economy shrank.

In a market downturn, City Parking, which is also respon- sible for issuing parking fines, wasn't able to cover the loan repayments from its operating profits and finished its first five years in the red.

As a result, the council has had to bail out City Parking several times since it was created, including providing guarantees for an overdraft.

City Parking made a loss of £1.029m in 2011-12, according to accounts filed at Companies House.

Full official figures are not available for 2012-13 but council sources said City Parking made an operating surplus of £241,000 in the last financial year.

Graeme Hendry, the SNP leader of the opposition on the local authority, aimed his fire at Glasgow's leader, Mr Purcell's successor Gordon Matheson.

He said: "That City Parking has slipped into negative equity is another worrying sign of the consequences of short-term decisions taken by the city under the current leader and during his time as City Treasurer.

"It's imperative that a long-term plan is put in place to turn around the fortune's of this struggling Aleo."

Trade unions have previously called for City Property to be brought back in to direct council control.

Other insiders have suggested the business could be taken over by another council Aleo, City Property. However, negative equity, sources said, would make either option extremely difficult or expensive.

david.leask@eveningtimes.co.uk