Colleges consider plan to sell and rent back campuses to survive cash crisis
Colleges are contemplating selling their campuses and leasing offices or commercial space as a way of overcoming the capital funding crisis.
At a conference organised by the Westminster Education Forum, principals, college leaders, local authorities, banks and property experts considered how further education institutions could renew old buildings without public funding.
Around half of the college estate still needs to be replaced or refurbished, at an estimated cost of pound;8 billion, while banks estimate colleges could raise between pound;1.5 billion and pound;2 billion through borrowing.
That would more than double their current debt, which has already caused concern at the National Audit Office, although the financial position and ability to service debt varies widely from college to college.
Kevin Sefton, director of management consultancy 4000rpm, asked whether colleges could consider selling assets and renting premises, which would be the typical response of the private sector in this situation.
Andy Wilson, principal of Westminster Kingsway College, which has completed one pound;50 million building under the programme but is still searching for funding for two other sites, said it was a possibility.
"Colleges certainly are looking at those opportunities," he said. "For our third site we are looking very carefully at selling and leasing back. I think the issue is it's reasonably bog-standard accommodation that we want - nothing particularly specialist. It is mainly some classrooms and some learning centres and social space for students and that may well be feasible in that situation."
But Mr Wilson said the fears about reduced revenue were making it even harder for colleges to come up with ways of paying to replace outdated buildings.
"It's less the lack of availability of capital funding, more certainty over revenue in order to be able to pay leases and loans," he said.
Mr Wilson said there appeared to be a link between the new buildings and better results. "We have got substantially improved attendance, students are spending longer on site even when not in classrooms, and our first set of success rates last summer had an increased attainment of 6 per cent at level 1 and 4 per cent at level 2," he said.
"How much of that was the result of the building? Difficult to tell, but our new buildings have inspired our lecturers to become better, which has inspired students to become better."
He said there was also a longer-term impact, with recruitment up 10 per cent for teenagers and 20 per cent for adults, and with more applications converting to enrolments. In urban areas in particular, attractive new buildings drew in out-of-work teenagers from miles around, he said.
But rising birth rates will put further pressure on colleges. Peter Martin, cabinet member for children and learning at Surrey Council, said that the birth rate had increased 20 per cent in the last nine years in his area and would soon affect post-16 education. The raising of the school leaving age to 17 in 2013 and to 18 by 2015 will also have an impact. But capital funding will be split between two funding agencies.
Chris Hearn, national head of education at Barclays, the biggest lender to colleges, said he believed borrowing would be the solution for most colleges, and said they were generally in a good position to take on debt.
He supported greater flexibility in borrowing for colleges, saying that the old measure based on turnover had little to do with the way banks assessed the risk of a loan. A more bespoke method of calculating affordability was needed, he suggested.
"We have already seen colleges that look like they could borrow 100 per cent of their turnover, while for others borrowing 10 per cent be a struggle," he said.
Banks would want to be involved at a much earlier stage of the design and building process now, he said, helping colleges to work out what they could afford so they could draw up feasible plans.
Jeremy Wilson, property consultant with Drivers Jonas and a governor of Ealing, Hammersmith and West London College, said colleges would still be left with a huge gap between the estimated cost of renewing all their property and their potential for borrowing.
He said there would be a greater need for learning in the workplace, and that the Learning and Skills Council (LSC) was likely to further reduce its specifications for the amount of space per student it expected in colleges, with greater use of technology and e-learning.
There was also scope to reduce running costs of college property, to free up revenue for borrowing. But at the same time the LSC was poised to introduce new carbon reduction targets, putting further pressure on old college buildings, he said.
However, for some, incremental refurbishment was simply not an option, he added.
"It's not much solace to colleges like mine, we have got 25,000 square metres on the Talgarth Road, it's all the same, it's functionally unfit for purpose," he said. "You can't actually refurbish that in any sensible way. That is flushing money down the toilet if we do it."
There is more than one way to raise the money to expand educational provision, as SEEVIC College in Essex has proved.
The college has received pound;6.5 million from Essex County Council towards the costs of building a new vocational education centre on Canvey Island, catering largely for 16- to 18-year-olds.
It had been feared that the collapse of the Building Colleges for the Future programme would have scuppered plans for the pound;7.5 million campus.
Sarah Wright, principal at SEEVIC College, said: "If it was not for the investment, this would not have taken place. The Castle Point Regeneration Partnership, which helped broker the deal, argued the college was vital to the island's regeneration."
The Canvey skills campus will cater for up to 350 students studying across five main areas: motor vehicle engineering; construction; health and social care; sport and leisure; and hospitality and catering. It is due to open in September 2011.