After defining success metrics and determining whether there is sufficient demand to support new campus housing, it’s time to evaluate the delivery mechanisms to bring a first-time student housing plan to fruition.
First, an institution may be able to budget, borrow or otherwise internally generate cash through giving initiatives to self-fund their housing projects.
Second, some institutions may be able to fund their capital project through state-appropriated funds or a public referendum, with dollars earmarked for specific projects. While this is an unusual way to fund student housing, it is possible. In these cases, institutions need to be careful they don’t accidentally appropriate funds set aside for other projects.
Third, an increasingly popular way colleges fund housing—especially for first-time projects—is through a Public Private Partnership (P3). The proliferation of P3s initially grew among higher-education institutions because they make major construction projects possible without having to raise the capital to build them or have them completely “on balance sheet,” leaving other capital sources available for academic and other non-revenue-generating capital projects. This approach, however, can be complex and typically demands some level of commitment from the institution. While this option is not appropriate for every institution, it frequently offers a practical, affordable way to achieve goals set out by the student housing plan.
P3: What’s at risk?
The level of institutional risk with a P3 delivery, as well as the potential ownership structures, varies considerably. A developer-owned project may provide a resource for the institution to house its students in but will grant little control over the day-to-day operations of the project. In addition, if the institution master-leases the project from the developer, that commitment will translate into an accounting impact over the life of the lease. An institution-owned project will grant it 100% control, but typically, also 100% of the risk and the balance sheet impact. A carefully negotiated P3 will balance the institution’s risk and control, while keeping the bulk of the capital liability off the institution’s balance sheet.
Any delivery mechanism will carry some amount of risk. For instance, an institution may have to pledge to cover certain up-front or operational costs for a period of time if net revenue is insufficient to cover them. Whatever the financial arrangement, however, there is one thing all parties must agree upon: creating an environment and experience that appeals to the students who will live there. Otherwise, the facility is unlikely to attract and retain the students required to make it a financial success.
Finally, an institution must understand what it is conceding through a P3. For example, if the deal stipulates that the institution will not own the building outright, leadership must work with the developer and owner to spell out how operations, maintenance, student life and other issues are delivered and paid for. Clarity over these core services and who is responsible for them is critical to ensuring a seamless resident experience.
Institutions should never give up control over functions necessary to fulfill their institutional mission. Fulfilling this principle may mean maintaining control over residential life program design, campus construction standards or academic schedules, and operational goals. At the end of the day, the project will be associated with the college’s brand and reputation. If a school fails to meet student expectations in these areas, its goodwill and future enrollment could be at risk.
How expert partnerships support your student housing plan
Institutions new to campus housing can benefit from an expert’s knowledge as they plan, build, manage and market the project. While working with a developer or third-party operator may require giving up some level of control, it can also bring a college the experience and insight it needs to meet the demands of student housing. Institutions are also encouraged to hire an independent consultant who will contribute a broad range of experiences, an unbiased expert perspective, and a singular focus on advocating for the institution’s goals at every step of the process.
A future Scion Executive Guide will explore in detail the process and considerations for entering into a Public Private Partnership based on our team’s experience in the current financing environment.
For more, download our full research on Starter Home: Preparing for Your First Campus Housing or register for our upcoming webinar.
