University of Limerick paid €5.2m above market price for student housing
The University of Limerick (UL) has lost €5.2m over its controversial purchase of 20 houses, just six months after the deal was completed. A review of the deal shows UL’s €11.44m valuation of the homes was inflated and did not represent good value. UL should have expected to pay about €6.24m.
UL president Professor Kerstin Mey has been asked to consider her position by members of the university’s executive committee, a body responsible for the daily management of the college, over the issue.
The State’s spending watchdog, the Comptroller and Auditor General, is liaising with the university over the terms of the transaction and its impact on UL’s accounts. It is also being scrutinised by independent consultants working for UL.
The houses do not have planning permission to be used as student accommodation and the university has been warned it could face a significant fine if found guilty of breaching planning laws.
Students moved into the properties last year and still live there.
A stamp duty bill will see the total cost to UL increase to €12.58m. UL had not anticipated this additional cost before entering the deal, raising questions about due diligence procedures.
This means the homes in Rhebogue, on the outskirts of Limerick city, cost €629,000 each — twice what is typically paid for similar properties in the area. UL’s inflated valuations put the houses at about €570,000 each before stamp duty.
A review suggests UL should have valued the homes at about €312,000 each on average.
Prof Mey admitted on Friday night “the university paid significantly above market price for the Rhebogue properties”.
“The university will have to absorb the resulting draft impairment, a sum in the region of €5.2m, in our financial accounts,” she added.
She failed to outline what other steps the university may consider because a review of the deal is ongoing.
Staff and officials at the college have expressed outrage over the purchase. Locals in the area are also angry, saying UL’s actions priced families out of the market and prevented them buying the homes.
It is the second time this year UL signalled a significant financial write-down because it overpaid for property.
Oireachtas Public Accounts Committee chairman Brian Stanley, a Sinn Féin TD, accused UL of “throwing money around like confetti” when the Sunday Independent first reported the cost of the deal last month.
UL’s governing authority, a body responsible for planning and policy, and its executive board signed off on a €10.88m investment to acquire the homes in 2022. This was presented to the boards as a purchase price of €136,000 per bedroom.
Two valuations presented to the boards valued the homes at €10.6m and €11.2m before the approval was granted.
Sources with a knowledge of how student accommodation deals are approved said it is not unusual for costs to be presented to universities in this way.
The sources said €136,000 per bedroom is towards the high-end of what a university might pay for purpose-built student housing, but flagged that this is not what UL has purchased.
Planning files show the two-, threeand four-bedroom homes at the centre of this deal were initially designed and approved to house families but have been converted to accommodate students.
A downstairs room in each property has been converted into an en suite bedroom, with each house having a communal kitchen and living area. They are located in a residential area about 3km from UL.
“These are family homes, not student accommodation, so the price per room metric may not be appropriate in this case,” one source said.
While UL approved a €10.88m spend on the homes, it eventually signed a €11.9m contract with the developer. This was negotiated down to an upfront cash payment of €11.44m when UL purchased its way out of a rent share agreement with the builder.
It is unclear how this additional cost was approved. UL did not answer questions about the approval process or rent share agreement.
“This is an issue of major concern for the university in terms of management, governance and reputation,” Prof Mey said. “I am engaging with our stakeholders to chart the best way forward and there will be action taken as a result of the review that has been commissioned into the transaction.”
Last year’s financial accounts are to be signed off in the coming weeks. The university had expected to record a surplus; Prof Mey said it will now be reporting a financial deficit.
UL introduced new approval procedures for property deals after it overpaid for a city centre building in 2019. This process is likely to come under significant scrutiny now.
A review of the 2019 deal was completed two months ago with UL writing €3m off the value of its city centre campus after admitting it overpaid for the building. It means the taxpayer has taken a hit of €8.2m across UL’s two most recent property purchases.
“It is a matter of regret for me as president and I am aware that there is frustration and anger among staff members that this has happened so soon after the issues that arose in relation to the city centre campus,” Prof Mey said.
UL has been given a warning over its use of the 20 homes as student accommodation. A letter from Limerick City and County Council to the university shows UL risks a fine over a potential breach of planning legislation. The warning letter notes the maximum penalty upon conviction of breaking planning rules includes a fine of up to €12.7m.