Ireland

University of Limerick in line for bruising encounter over student housing project

UL spent more than €11m on student homes 3km from campus but university president has acknowledged institution ‘paid significantly above market price’

UL president Prof Kerstin Mey has been on sick leave since March. She has signalled she cannot go before the PAC because she is incapacitated. Photograph: Sean Curtin/True Media
UL president Prof Kerstin Mey has been on sick leave since March. She has signalled she cannot go before the PAC because she is incapacitated. Photograph: Sean Curtin/True Media
Arthur Beesley's picture
Arthur Beesley
Wed May 08 2024 - 06:00

The University of Limerick (UL) is in line for a bruising encounter at a Leinster House hearing tomorrow of the Dáil public accounts committee (PAC). At issue is a botched student housing project in which the institution overpaid €5.2 million for 20 homes, a deal that has raised serious questions over the future of UL president Prof Kerstin Mey.

On sick leave since March, Prof Mey has signalled she cannot go before the PAC because she is incapacitated. This has drawn comparisons with senior RTÉ figures who failed to attend the committee. But she remains firmly in the spotlight over a disputed transaction that has created no end of trouble for UL.

UL spent more than €11 million on the student homes at Rhebogue, 3km from the campus, but Prof Mey has publicly acknowledged it “paid significantly above market price” for reasons that remain unclear.

Her leave began as UL received a report from Niamh O’Donoghue, former chief of the Department of Social Protection, which reached damning conclusions about the way the deal was done. Similar concerns were raised in a separate preliminary examination by the Higher Education Authority (HEA), which is UL’s regulator.

READ MORE

For the university, these reports make grim reading. In the unforgiving atmosphere of the PAC bear pit, university leaders now face something akin to a mauling.

O’Donoghue’s report, dated March 23rd, runs to 26 pages. To name but a few issues, it identifies problems with the project valuation, the purchase price and financial arrangements, public procurement rules, planning permission and stamp duty. It also sets out problems with presentations to UL’s executive committee and governing authority and problems with the treatment of “contrary views” in the upper echelon of the university.

“In relation to financial appraisal, it is unclear if a formal comprehensive appraisal was ever carried out on the proposal. If such an appraisal had been carried out, it would have been a key document to be considered as part of this review — however, no such document has been provided,” states the O’Donoghue report.

Valuations were secured from two external firms but they carried out their work based on “two different bases”: one based on a five-year lease coupled with purchase over five years; the other based on a 20-year lease arrangement. Neither valued the development based on outright purchase by UL, although that was never specifically requested.

“A feature of the valuation advice provided by both firms was that value was assessed based on price per bed space in respect of 80 bed spaces at a specified rental rate. It is understood that given the properties had not yet been built, a more valid valuation would have been of the value of the 20 residential houses for which planning permission had been granted with sales information in relation to similar local properties used for comparison purpose,” notes the O’Donoghue report.

“However, the comparators used in the valuations were a mixture of local and Dublin-based properties. In addition, the comparison appeared to be primarily portfolio sales with associated rent yield (long term lease arrangements), and the comparative multiplier used is the unit price (house or apartment) rather than bed space price,” it adds.

“Given all these factors, the valuations sourced from the external providers were not appropriate to the proposal which was being considered and used in progressing the proposal for consideration by the governing authority.”

The report finds “several issues of concern in relation to the external valuation assessments secured — the selection of the planning experts; the assumptions specified to the valuers; the basis of consideration being a commercial investment rather than purchase; and the properties used for comparison purposes to the property in question”.

Arrangements for the purchase price — which described the price in terms of asset cost and rent — were “somewhat unusual and potentially misleading”, the report notes.

Although UL’s governing authority approved a €10.9 million transaction payable over five years in August 2022, the final contract signed nine days later was for more than €11.9 million. The explanation for the additional €1.08 million was “rent” payable to the developer aligned to the percentage of the purchase price paid. “There is no mention of ‘rent’ in the contract,” O’Donoghue notes. The €11.9 million was later discounted by €540,000.

Similar concerns were raised by the HEA. In a March 26th letter to UL chancellor Prof Brigid Laffan, HEA chief Dr Alan Wall described his “deepest concerns” concerning the university’s governance and culture.

“Based on the evidence provided, UL have not demonstrated that they implemented an effective strategy to secure value for money through this acquisition, in both the implementation of a negotiation strategy and the undertaking of the valuations of the Rhebogue property,” states the Wall letter.

“Based on the evidence provided, UL have not demonstrated a coherent and effective approach to undertaking the necessary programme of due diligence at the appropriate time in the acquisition process, across multiple issues including, planning, property valuation, stamp duty and procurement.”

The university did not demonstrate compliance with the public spending code in the Rhebogue deal. Neither was evidence presented “of undertaking a sufficiently comprehensive or robust business case” to support the acquisition. “UL did not present evidence that the university undertook a systematic appraisal of the available student accommodation options, despite alternative options being referenced at various stages in the process.”

In the face of the housing crisis, UL entered the Rhebogue deal because it needed more student accommodation. It now faces a growing crisis of public and political confidence.