King's College, Cambridge

Costs of Tennis Court Road (TCR) and the prospective Garden Hostel Addition (GH)

This paper considers the costs of just two College residences, which hopefully bracket the range of cost of modern buildings. They have been selected because the costs are relatively easy to determine. Note that a similar approach for our historic buildings will be more difficult in that inclusion of their initial costs would not be appropriate and the maintenance costs will be considerably higher.

Two bases, which vary only in terms of the treatment of the capital investment, are used to compute cost. The "low" basis is seriously optimistic. The "high" basis makes assumptions nearer those of a market investor. The cost of our land is not included in either case.

Low assumption

Capital appropriated from endowment to buy a building would have otherwise been invested in shares to yield 2% pa, and this yield would have increased only in line with inflation.

High assumption

Capital appropriated from endowment to buy a building would otherwise have been invested in a freehold building to yield 6.5% pa (increasing in line with inflation) with maintenance paid by the tenant.

Common assumptions

Initial capital costs: TCR is actual purchase price for 72 year lease. GH costs £70,000 per student room to build including ancillary costs (the figures are based on initial estimates from a quantity surveyor and are likely to be more).

Routine maintenance costs 1.5% pa of insured value. GH is insured at original cost.

The initial capital investment in TCR is amortised on an equal annual real terms annuity basis over the life of our lease (72 years from 1995). No amortisation is assumed in the case of GH (this is clearly an under-estimate of the true economic cost and allows generously for the long life that should result from the relatively high assumed maintenance spend).

Running costs at GH are the same as at the present Garden Hostel (this is an over-estimate as only a single hostel-keeper will be required).

No cost is assumed for porters, gardeners and similar overhead. A charge for a fair allocation of these costs is intended.

Inflation July 1995 to October 1999 was 11.67%

	Tennis Court Road	Garden Hostel Addition
	£’000	£’000
Initial capital cost	1153	2310
Insured value	1725	2310
Number of student rooms	37	33
	per room £’000	per room £’000
Initial cost	31.1	70
Equivalent 1999 prices	34.7	70

	Tennis Court Road	Existing Garden Hostel
Number of student rooms	37	42
	£’000 pa	£’000 pa
Cleaners	11.3	11.6
Hostelkeeper and warden	9.3	8.3
Heating etc	9.9	13.8
Total running cost	30.6	33.7

TENNIS COURT ROAD
	Low £ per room pa	High £ per room pa
Annuity over 72 years (1995 prices)	803	1919

Annuity (1999 prices)	897	2143
Maintenance (1.5% insured value)	699	699
Running costs	827	827
Total	2423	3669

	£ per week	£ per week
Equivalent rental 52 weeks pa	46.60	70.60
Equivalent rental 30 weeks pa	80.80	122.30

GARDEN HOSTEL ADDITION
	Low £ per room pa	High £ per room pa
Cost at 2% or 6.5% pa	1400	4550
Maintenance (1.5% insured value)	1050	1050
Running costs	802	802
Total	3252	6402

	£ per week	£ per week
Equivalent rental 52 weeks pa	62.54	123.10
Equivalent rental 30 weeks pa	108.40	213.40