The University of Kentucky had a problem: Enrollment was up significantly, but the number of residence hall spots remained stagnant. With 5,000 beds available in 22 campus residence halls, the university could accommodate incoming freshman—but a growing number of sophomores desiring on-campus housing were being turned away.
Eric Monday, executive vice president of finance and administration, knew that as enrollment continued to rise, so too would the campus student housing shortage.
“We needed to grow housing to strengthen the undergraduate experience and improve student success,” says Monday. “But we were not interested in taking on any debt.”
By entering a public-private partnership with collegiate housing developer EdR, the university could authorize a $449 million expenditure for the construction of new residence halls, adding 3,000 new beds between 2013 and 2017.
The partnership also kept the university from having to raise housing prices or borrow money—and students loved the new spaces. In fall 2016, demand for spots in the new residence halls exceeded the number of available beds.
Public-private partnerships, also known as P3 or 3P, are a growing trend that allow universities to fund the construction of new buildings and, if desired, turn over maintenance and operations to skilled partners.
Structuring these partnerships for a successful outcome—critical because the deals typically last for decades—involves careful planning on the big decisions and the details.
Connecting to the mission
Universities pursue these initiatives when they lack funds, land or staff who have experience overseeing construction projects, says Norb Dunkel, associate vice president for student affairs at the University of Florida, which entered into its first public-private partnership in 2013.
The university inked a $20 million deal with Signet to build a 312-bed coed dorm called Infinity Hall.
Under the terms of the deal, Signet paid to build the dorm and will cover the costs of maintenance for the duration of the 30-year contract. The school manages room assignments and occupancy, collecting rents and paying the developer a per-room fee plus the cost of services such as trash collection and cleaning. At the end of the term, the developer returns ownership of the complex to the university.
Even though the school is not taking on debt, these deals are not without risk, says Dunkel. “If something happens and enrollment goes down, we still have to pay [the developer] for every one of those rooms.”
And, when the asset is handed over to the university at the end of the agreement, the school has an old building back on its rolls that might need significant upgrades or maintenance, says Allan Blattner, president of ACUHO-I and director of housing and residential education at The University of North Carolina at Chapel Hill.
Despite the risks, P3 arrangements have benefits beyond keeping schools from taking on debt. They also free up capital for facilities like libraries and labs and, when the developer manages the new building, campus staff can focus on student services.
The decision to enter into public-private partnerships often starts in the real estate or finance department, when officials agree additional residence halls are needed but the school does not want to take on debt or manage the building.
Before signing on with a partner, campuses should ensure all administrators involved in student housing agree on the goals. Too often, the deal gets too far along to incorporate the input of other departments, such as housing, Blattner says.
“Having conversations internally, before you engage with outside entities, is key,” he says.
Working out the details
Arizona State University reviewed several proposals in seeking a partner to build 1,800 new beds in 2008. The team, including deputy treasurer and vice president of finance Joanne Wamsley, evaluated each potential partner for financial strength and experience developing similar projects. The university ultimately partnered with American Campus Communities to develop Vista del Sol.
Since then, the campus has added an additional 5,200 beds through P3 agreements.
To ensure the partnerships are successful, Arizona State University established joint committees that meet several times per year and set contractual requirements regarding service and maintenance standards—including the timing of upgrades for everything from paint to building fixtures (doorknobs, soap dispensers, toilet paper holders, etc.) to furniture.
In 2014, the University System of Georgia reached a deal with Corvias to build 3,600 new beds on seven campuses.
“We wanted a long-term partner, not a casual real estate investor,” says Susan H. Ridley, associate vice chancellor for fiscal affairs and finance director. “Even though we are one system, each of our institutions is unique and the proposal we got from Corvias demonstrated that they understood that.”
As part of the $517 million deal, Corvias retired outstanding debt on existing dorms and financed acquisition of land; the university system has a 65-year lease. The developer will take in the rental revenue, allocating a portion to the school to manage residence life and security.
University system officials developed a comprehensive division of labor. The agreement determined whether the school or the builder was responsible for everything from actually collecting rents to changing light bulbs or re-keying a door.
At the University of Kentucky, housing and finance staff have been holding weekly meetings with its partners at EdR since 2011.
Communication is important to successful public-private partnerships, Monday says. “I’m not suggesting we don’t have challenges and tension—every partnership has that—but our focus is serving our
students so we work through it.”
Reaping the rewards
Attracting new students and enhancing residence hall services—such as high-speed broadband and smart meeting rooms—is another key reason universities undertake P3 agreements.
“We thought we could achieve greater efficiencies in operations with a partner while maintaining control over the living-learning experiences on campus,” Ridley says.
Unlike off-campus housing—where rental revenue is the priority—P3 agreements often create student gathering spots. In the dorms at the University of Kentucky, 67 percent of the building consists of private rooms and suites. The remaining square footage—which doesn’t generate revenue—comprises classrooms, learning centers and dining halls. “These innovative spaces power learning, community, creativity, belonging and, above all, student success,” says Monday.
Experienced developers can help achieve those goals, adds Blattner of ACUHO-I.
“[A public-private partnership] has all of the advantages of a business relationship, including access to capital and financing as well as a significant investment in educational purposes through non-revenue spaces like lounges, lobbies and rooms for group studies,” he says. “It’s housing with a greater purpose.”
Private developers in higher ed
- American Campus Communities
- BBL Campus Facilities
- Campus Real Estate Solutions
- Capstone Development Partners
- Corvias Group
- Fairmount Properties
- Peak Campus Companies
- Prime Property Investors
- UHS – University Housing Services
- University House Communities
Jodi Helmer is a North Carolina-based writer.