How do we assess the value of theatres?
Phil Holden of Deloitte Real Estate opened this strand of debate by describing valuation as a dark art rather than a science for there is no right answer; it is a matter of individual opinion and valuing theatre has its own particular challenges whether West End or smaller not-for-profit theatres. How can it reflect a theatre’s cultural and social value?
Neil Richmond, principal of consultancy Neil Richmond and Co, is one of the few valuers with experience of West End theatres. He made it clear that valuers have to operate according to the rules laid down by the Royal Institute of Chartered Surveyors and that is all a matter of market value: a theatre has no intrinsic value of its own because it is a theatre. If there are other assumptions they must be stated—and it is very difficult to take into account sponsorship or subsidy.
Leisure properties are often built and fitted out specifically for purpose and change hands only between operators in that field. A valuation then might reflect trading potential and (assuming a continuing licence) fittings and equipment be considered. In the West End particularly, change of ownership may cost less than the site value alone let alone construction cost.
In the case of not-for-profit and subsidised theatres, the same applies. A valuer still has to look at market value and rental value. Consideration of value for alternative use must take account of any planning protection.
Ollie Saunders, of Jones Lang LaSalle, a valuer experienced in valuing unusual assets from art galleries to conference centres, spoke of a hierarchical approach to assessment: first prices for which comparable properties have been sold, then income, profits, residual value (the land), depreciation and replacement cost. In cases of compulsory purchase, he explained, value was based on equivalence.
David Rossington, Finance Director at the DCMS pointed out that, with a government committed to limiting deficits, further reduction in resource spending is to be expected, especially in areas such as the arts, which are not protected.
Nigel Taylor of Taylor York Commercial was the valuer involved in the sale by York Council of York’s Theatre Royal to York Conservation Trust for just £1. Pointing out that that figure was achieved by exactly the processes just outlined, he explained how.
The theatre is at the heart of York’s cultural quarter, York Citizen’s Theatre Trust holds a lease and is entitled to renewal and even if change of use were legally possible the Council would not wish it. However, the fabric of the theatre had urgent need of expensive repair and replacement.
A valuation based on potential rental income, adjusted in line with the Retail Price Index, produced a figure exactly £1 higher than the cost of refurbishment. The constitution of the Conservation Trust ensures that it operates in the interest of both heritage and the community, the Theatre Trust has its lease and the Council saves a big bill while retaining a community resource.
It appears that, within the commercial sphere, a long-running production can affect perceived value as a source of continued regular income and, with the West End theatres housing some very long running musicals, this is creating a widening gap between the assessed values of musical theatre houses and those where the product is plays.