Gerald Eve LLP
Stand Number : H18
While post-2009 efforts to reduce public spending have been widely felt, the effects have hit some sectors harder than others. In the education sector it is the tertiary FE colleges and training institutions for 16-18 year olds that have borne the brunt of the cuts.
With funding being reduced, in September 2015 the Government embarked on ‘Area Reviews’ of further education and sixth form colleges to identify efficiencies while ensuring capacity met students’ needs. The reviews included 33 colleges in five waves – each led by a steering group – and it quickly became clear that central government expected mergers of institutions as a result.
The Government established the Transactions Unit (TU) to help implement the recommendations and assist with property restructuring. Government figures show that to date there have been 58 applications for support, 19 of which have been approved. Out of an original pot of £726 million, £300 million of restructuring facility funding has been allocated. The deadline for colleges and training institutions to apply for restructuring funds is September 2018 with funding available until March 2019.
Against this backdrop, banks have changed the way they lend to the sector, with leading banks reporting that because of changes in funding and their own regulation, taking security over property for existing or new facilities could result in cheaper lending, which in theory would be passed onto the borrower. This led to a move towards college borrowing being secured over property, unlike historic unsecured lending.
The banks, colleges and TU are linked by the need for a real understanding of the value of property assets. For lenders, market value or ‘alternative use value’ is a key consideration when assessing loan security and accurate valuations are essential. For colleges, a valuation assuming a continuation of existing use, i.e. for financial reporting may be more useful for continued operation rather than a ‘doomsday’ scenario.
Gerald Eve is the preferred valuer to the sector, with a specialist team holding extensive expertise. We have advised:
- Banks and TU on the value of college estate to inform loan security and restructuring prior to a merger.
- Banks looking to consolidate security on college assets post-merger.
- Colleges on their due diligence to assist restructuring with the TU.
- Colleges on their estate strategy, including disposal options for surplus assets prior to merger.
There are, of course, other areas where colleges are seeking to review their real estate portfolios; strategies involving capital release and raising income from surplus assets have become increasingly popular. A robust estate strategy is vital to the success of any college, particularly in this challenging funding environment. The key areas to consider include space utilisation, releasing receipts from surplus property, understanding existing condition and repair issues, planned maintenance, new build projects, business rates mitigation and the impact of the above on value. A true understanding of the education sector is vital, and Gerald Eve’s experience goes a long way. Whether it is business rates, valuations or portfolio strategy
If you would like to know more about how Geraldeve can help review your estate portfolio, you can visit their stand H18 at the Public Sector Show, on 26 June at ExCel London.