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Leadership webinar: the schools property market (video and webchat)

Discussion in 'Senior Leadership Team' started by AndrewFIS, Jan 12, 2016.

  1. AndrewFIS

    AndrewFIS Occasional commenter TES Leadership Expert

    The schools property market faces risks and opportunities in equal measure. But what are the priorities for your estate management?

    As part of the TES Leadership webinar series, I’ll be putting your questions to Richard Moir, partner at Gerald Eve.

    We will examine current issues including funding, planning restrictions and valuations.

    Post your questions below now - and, if you can, join in our live webchat on January 20 at 4.30pm.

    Before that, you can watch a video we’ve made in which Richard and I discuss the issues, with key advice for school leaders.

    To access all the videos in the TES Leadership series, plus an exclusive database of grants available to schools, become a TES Leadership subscriber.
  2. TES_Rosaline

    TES_Rosaline Administrator Staff Member

    Good afternoon and welcome to the fifth in our series of webchats aimed at school leaders.

    In a few moments I will hand you over to Andrew, who is editor of FIS, who will be hosting this week's hour-long webchat.

    Andrew and this week's guest, leadership expert panel member Richard Moir who will be available for the next hour to answer your questions on the current issues relating to the school property market.

    If you have any questions please submit them below. Don't worry if we run out of time, any unanswered questions will be responded to and posted on this thread later this week.

    I'll now hand you over to Andrew.

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  3. AndrewFIS

    AndrewFIS Occasional commenter TES Leadership Expert

    Hello and welcome to a live webchat with Richard Moir, partner and head of the education and charities team at Gerald Eve, on the schools property market. For those of you following this thread, please feel free to post your query. Remember to refresh your page to see the updates as they appear.

    Welcome, Richard. Could I begin by asking what the school rental market is doing at the moment? Is there a difference between London and outside the M25?
  4. Richard_Moir

    Richard_Moir New commenter TES Leadership Panel Expert

    The tone of education rents in and around Central London, mainly by higher education institutions and to a lesser extent schools, ranges between c. £30 and £50 per sq ft. In some cases towards the higher end of the range, the rents are often based on geared office rents. Evidence of rent reviews is generally substantially below where new lettings are being achieved.

    School lettings in good quality, mainly residential, locations around Central London are in a broad range from c. £30 to £90 per sq ft (although the incidences at this level are exceptional rather than the norm) and they reduce in more peripheral London areas, and again outside of London, with the exception of key educational centres such as Oxford or Cambridge. Some of these rents arise from sale and leaseback transactions.

    Rents in Central London and other ‘good’ affluent residential locations are partly driven by a scarcity of supply. Premises with a D1 planning use class rarely become available and when they do, they attract strong competing interests from education providers.

    There are very few lettings of schools (other than nurseries) outside of London and thus, there is far greater variation of rents.
  5. AndrewFIS

    AndrewFIS Occasional commenter TES Leadership Expert

    What are the reasons for carrying out a capital valuation?
  6. Richard_Moir

    Richard_Moir New commenter TES Leadership Panel Expert

    Reasons to carry out a valuation include:

    • Purchase or disposal
    • Secured lending purposes
    • Asset valuation
    • Financial reporting purposes

    School assets are generally recorded for financial statements at historic cost. If a school was to obtain a valuation using the market pricing approach we would expect it in most cases to be higher than using the historic cost method. This would bolster the balance sheet, but could also have implications for depreciation which hits P&L.

    Valuation can be seen as an expensive distress purchase. However, sometimes a valuation is essential for example, for secured lending, and otherwise benefits of a valuation might include an audit of the school's planning potential, it may identify title defects, and may alert to other defects.
  7. AndrewFIS

    AndrewFIS Occasional commenter TES Leadership Expert

    Is now a good time to borrow or refinance any loans to improve the estate? Will we need a valuation?
  8. Richard_Moir

    Richard_Moir New commenter TES Leadership Panel Expert

    I am not qualified to provide financial advice but there is certainly strong appetite currently from banks to lend to schools.

    UK banks are now offering longer terms, lower interest rates, and development finance for capex projects (which largely ground to a halt during the recession). Reference rates (Base rate and LIBOR) are expected to stay low for the foreseeable future. Borrowing is currently relatively cheap and UK banks are keen to lend to strong covenants. In addition, we have seen schools raise finance through alternative sources, such as private equity, sale and leaseback, or by way of a bond issue.

    Valuations are almost always required by lenders, who will typically lend up to 60-70% of the market value of the property. Some banks will offer a loan which is a ratio of the market value of the school business as a trading entity, others will offer a loan as a ratio of the land and buildings only (i.e. vacant possession). The value of the property as a going concern i.e. the school business is usually higher than with vacant possession only.

    In the past couple of years we have seen a number of schools obtain funding via lenders such as Barclays, Lloyds and RBS/NatWest, for capex projects which the schools had previously moth-balled, whilst waiting to see what, if any, affect the recession would have on pupil numbers. With confidence in the economy growing, we have seen a surge in these stalled capex projects.
  9. AndrewFIS

    AndrewFIS Occasional commenter TES Leadership Expert

    For those of you following this thread, please feel free to post your query. Remember to refresh your page to see the updates as they appear.
  10. AndrewFIS

    AndrewFIS Occasional commenter TES Leadership Expert

    Is now a good time to carry out improvement works to the estate in relation to construction and finance costs?
  11. Richard_Moir

    Richard_Moir New commenter TES Leadership Panel Expert

    Now may be a good time, provided the proposals are under-pinned with a sound business plan. Whilst construction costs have been rising, we do not anticipate costs to fall in the short to medium term. In addition, as above, the availability of finance means the cost of borrowing is generally cheaper than in previous years and it is not clear when rates will rise.

    In our experience, if a school does not invest in facilities, they deteriorate and then the school may struggle to attract pupils, particularly if the competition offers better facilities (unless the school can distinguish itself, for example with smaller class sizes).
  12. AndrewFIS

    AndrewFIS Occasional commenter TES Leadership Expert

    I know there is a business rates revaluation due in April 2017, what are school rateable values expected to do generally? When do they get released?
  13. Richard_Moir

    Richard_Moir New commenter TES Leadership Panel Expert

    We expect there to be significant increases to the rateable values. The increase in rates paid may be offset if the Government reduce the educational decapitalisation rate (which will be announced this Spring).

    The Valuation Office have been working on the 2017 Rating Revaluation for the last two years and the draft new Rateable Values will be published in the Autumn this year. The final figures will take effect on 1 April 2017 and will represent market rental values as at 1 April 2015. With rating (and Council Tax) we are always taking current physical circumstances and valuing at an earlier “Antecedent Valuation Date”.

    We are expecting the Rateable Values for schools to increase by about 15% above the national average. Some recent high rents are likely to lead to large increases for Central London schools and for smaller schools outside London, the Valuation Office are intent on using the limited rental evidence which they do have to justify substantially higher levels of value.

    Larger schools are likely to continue to be valued on the “Contractors Basis” (with reference to building costs) but there will be a significant increase in the base costs used, plus it is clear that some hard won previous allowances are to be removed.

    There will be a right to appeal against the new Rateable Values, but the Government are making the process more onerous and it may include payment of a fee. We always advise caution with appeals because it is not uncommon for the Valuation Office to have missed new buildings or extensions over the years. Also, there can be disadvantages of appealing on day one and the appeals being considered in isolation without helpful precedents, which will hopefully be set by the main professionals involved in this field. It is a complex area, and I would be happy to field more specific queries.
  14. AndrewFIS

    AndrewFIS Occasional commenter TES Leadership Expert

    If a school is struggling and has surplus land/buildings, is there a way they could sell the surplus property in order to release funds, and how do you start the process?
  15. Richard_Moir

    Richard_Moir New commenter TES Leadership Panel Expert

    Our recommendation would be to seek appropriate advice at the very outset. From a disposal perspective, if a sale is for redevelopment, the earlier a surveyor is involved to analyse and value the potential options the better. For example, one possible route to market would be a preliminary architectural feasibility study and pre-application advice from the local planning authority to inform the market. However, you would need to know there is a realistic chance of a successful application before accruing significant costs.

    Alternatively, the school may wish to place the property onto the market without the benefit of a planning permission, and ‘let the market decide’. Offers for re-development would typically be on a subject to planning basis, or discounted to reflect the risk in obtaining planning.

    If the school is a Charity, they would also need to obtain advice in compliance with the Charities Act. If a disposal by a local authority, they are required to meet 'best value' criteria.

    We also see examples of run down school premises on substantial sites where it may be possible to carry out a phased redevelopment to provide purpose built accommodation for the school, funded from the subsequent disposal of surplus land for redevelopment.
  16. AndrewFIS

    AndrewFIS Occasional commenter TES Leadership Expert

    A school wants to enhance their facilities. What should they do?
  17. Richard_Moir

    Richard_Moir New commenter TES Leadership Panel Expert

    This should start with a considered business case, which may or may not include advice from accountants, solicitors, surveyors, bankers etc. We have seen incidences of school-led projects being over-specified, over-costed and not viable. It is important to establish the viability of scheme before instructing expensive architects and design fees. It is also important to be realistic on timescales and if planning permissions are required, this can prolong the process.
  18. AndrewFIS

    AndrewFIS Occasional commenter TES Leadership Expert

    Finally, where are the school places going to come from to meet the growing demand?
  19. Richard_Moir

    Richard_Moir New commenter TES Leadership Panel Expert

    One of the Government's flagship policies currently is promoting new housing. Another one of their flagship policies is promoting the growth of Free Schools.

    The Education Funding Agency (EFA) are actively in the market seeking numerous buildings to acquire for the opening of free schools.

    Local authorities are also receiving substantial sums of money from house builders, for new housing schemes which is supposed to be spent on improving and / or extending the local state schools to meet additional demand. On the very large housing schemes new schools are required to be built by the developer.

    Finally, in wealthy areas there is also growing demand from private providers to expand their provision.
  20. AndrewFIS

    AndrewFIS Occasional commenter TES Leadership Expert

    Thanks, Richard, for joining us this afternoon. If anyone would like to pose questions for Richard in this thread, please do so and he will answer them later. We hope you found this webchat useful.

    To view other videos of interviews, you can subscribe here. This also includes a host of other benefits.

    The next webchat will be on marketing on a shoestring and will take place on January 26 at 4.30pm. Thank you.

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