Network Rail’s sale of 5,261 arches to Blackstone and Telereal in February may well have achieved a price some 50% in excess of the government’s retention value, but a National Audit Office report this week questioned whether the price achieved should outweigh the needs of tenants and communities.
Blackstone and Telereal paid just less than £1.5bn for the portfolio of railway arches, some £510m more than the conservative £950m value Network Rail had placed on the portfolio (if it were to be kept in public ownership).
Its pre-sale valuation was just less than £1.2bn and it was eventually marketed at a price of £1.4bn.
While the sale was found to be fair value – and has enabled Network Rail to balance its funding position for the five-year investment period ended in March 2019 – the NAO said the long-term value of the sale would depend on how Network Rail managed its relationship with Blackstone and Telereal.
Meg Hillier, chair of the Committee of Public Accounts, said: “The sale was designed to plug a gap in Network Rail’s budget, but means that the control of this important public asset is now out of the hands of the public sector so will receive less scrutiny.
“Value includes the wider impact on communities, places and tenants. Government should not, in trying to achieve the best price, lose sight of the wider societal impact when selling a government asset. Although the NAO found the sale was value for money, existing tenants were considered too late in the day with non-legally binding support only negotiated in the final stages of the sale.”
Tenants’ group Guardians of the Arches campaigned strongly against the sale of the arches, fearing a massive increase in rents would force out many of the small businesses.
Network Rail has forecast that income from the portfolio will increase from £83m in 2017-18 to £160m in 2027-28, mainly through investment and rental increases.
As part of its acquisition, Blackstone and Telereal launched a consultation with tenants and local communities to create a Tenants’ Charter outlining how it would work with the thousands of small businesses housed in the converted railway arches. That consultation closed last month. The Guardians of the Arches dismissed the charter as a “PR stunt”.
The NAO report also reveals that the sale of the portfolio took two years longer than expected, with 40 months elapsing between the time the sale was first considered and completion, and that it cost £15m more than initially expected. Network Rail spent some £35m on advisers and other transaction costs, around 2.4% of the overall proceeds from the sale.
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