As we continue our Campus Perspectives series, we are constantly thinking about what the future may hold for student housing in a post-pandemic world. Our topic this week focuses on Public Private Partnerships and whether timelines, funding, or construction could be affected by our shifting landscape.
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Question: What impact will the COVID-19 pandemic have on the proliferation of Public Private Partnerships (P3) in student housing, and what is your advice to institutions that are considering delivering or initiating projects within the next two years?
Jared Everett, Managing Director, University Partnerships
I believe over the next six months some P3 initiatives that were in their infancy may be delayed as universities turn their focus to the unprecedented short-term challenges COVID-19 has brought us; however, I am currently seeing most P3 projects continue to advance as many universities refuse to concede progress toward their future vision and master plans. I believe P3 student housing and mixed-use projects will continue to be a growing and important component of campus development. While COVID-19 may (or may not) impact the future design and operations of student housing, I believe the value of the residential higher education experience is something that cannot be duplicated from afar. The social, emotional, and cultural growth that students experience from residential life programming, community living, and other student activities is delivered outside the classroom. We mature as a society and grow in our respect for others and understanding of ourselves as we live, learn, recreate, and share meals with others. That social and community development, along with academic success and research, is core to the mission of higher education and is so often delivered through student housing and student life. On a more technical level, COVID-19 does not change the fact that many universities struggle with the need for additional housing, or new housing to replace aged facilities that are beyond their useful life, or facilities of a product type that is no longer desirable to students. As universities struggle to find new ways to fund their master plan, P3 continues to be a viable source for external expertise, risk transfer away from the university, and securing external funding, thus preserving university financial capacity for other needs.
Margaret Temple, Vice President
National Campus and Community Development
Of course, there is much uncertainty in higher education today as we all struggle through questions around opening of campuses and Fall enrollment. While the details of the full impact of COVID-19 are still unfolding, in many states affordable student housing remains a priority for higher education institutions. We also must look to the past for insights into how previous periods of economic struggle have affected demand for facilities on College and University campuses. According to the U.S. Census Bureau, during a period of deteriorating labor market conditions, people have often enrolled in school to upgrade existing skills quickly or to acquire new skills. It is not unrealistic to expect increased enrollment and subsequently demand for housing and facilities. Because delivery of new facilities is often a multi-staged process, and self-financing could be constrained, institutions may continue to plan for the future needs via Public Private Partnerships (P3) to optimize risk allocation. Private expertise provides efficient infrastructure solutions, allowing campus resources to focus on the fluid educational environment and establishing a new normal for the students.
T. J. Logan, Ed.D., Associate Vice President for Student Affairs
I believe the COVID-19 pandemic has the potential to impact the structure, scale, and scope of P3 relationships moving forward. This pandemic has been unique in that it exposes an element of risk transfer that wasn’t present prior to this. Institutions are asking themselves “have we really received the transfer of risk we believed we would?” As a result, we may be seeing a change to the risk profile of the traditional P3 relationship as development agreements will certainly take additional contingencies into account. The financial impact to institutions will undoubtedly require investment of outside capital, but now with new considerations. I believe campuses will be forced out of long held silos; and from a P3 perspective, that is likely to mean more multi-use facilities, fewer RFP’s for single building projects (and more campus wide deals inclusive of energy, classroom, parking, housing rec, and even venues), a greater understanding of how all buildings perform on a campus, and even the potential for more multi-institutional projects. In short, this will call for looking at campus development with a comprehensive lens, something many colleges and universities have not done well over the past several decades.
Patricia Filippone, Vice President, Business Development, Northeast
I do not anticipate the COVID-19 pandemic will slow the exploration of public private partnerships to provide student housing. First, long-term demand for new on-campus housing is likely to remain at current levels and even increase. Projects to replace existing housing will be numerous as much of higher education’s housing stock is outdated, riddled with deferred maintenance, or is most likely not consistent with the certain social distancing that will continue. Second, even though enrollment could be down this fall based on decisions incoming students may make during this pandemic, if prior recessions are an indicator, we may find enrollment growth in the longer term. More students will want to further their education at secondary and graduate programs to be able to manage their finances in a future recession as we saw back in the 2008 global financial crisis. Finally, in the face of these increasing needs, the availability of institutional capital will be limited therefore making alternative financing even more attractive. As a result of all of these projections I anticipate more institutions will investigate these delivery methods. The capital and construction markets will also have an impact. One thing I always say is that generally construction costs won’t be less expensive if you wait to move a project forward, just the opposite with construction inflation. It is too soon to know how this pandemic will impact construction costs, but if there is less demand, competition in the markets could become more favorable to overall project costs. This low interest rate environment is critical to economic stimulus and creates more opportunity for projects to remain feasible and attractive to an investor.
The bottom line is if demand for project still works, you should be ready for investors to put their funds to work on your project to obtain their stable return. Feasibility studies, conceptual designs and selection processes generally have a long lead time. Board approval and negotiating terms to get to financial close also add to the calendar. If you keep planning you will be ready to access the market, being nimble could be the difference between moving a P3 forward or missing the opportunity altogether.