As a number of large student housing companies have cracked the code on on-campus deals, public-private partnerships, known as P3s, have emerged as a growth area within the larger student housing market. How more student housing providers are getting in on the on-campus action was a hot topic at the 2014 NMHC Student Housing Conference & Exposition.
Fueled by success stories at other campuses, more universities and colleges, including smaller-sized and private institutions, across the country are exploring the possibilities of P3s on their own campuses. And many are looking at P3s not just as a development tool but also as an effective management solution.
For example, The Scion Group’s Mitchell Smith, senior vice president and head of operations, and Brent McPherson, director of on-campus property operations, offered attendees an inside look at the company’s P3 with the University of Nevada at Las Vegas. Through the partnership, the university outsourced the management of all its residence halls, with the goal of increasing occupancy without the need for additional new construction or substantial capital spending while preserving the university’s control over its residential life component.
The results have been noteworthy, far outpacing initial expectations. For example, prior to the deal with Scion, the university had an occupancy rate of 60 percent on 1,450 beds. Not only did Scion improve occupancy rates by 86 percent in five months, but it also grew capacity by converting a facility that had been reserved for housing university meeting and conference attendees to student residential housing. All told, the university now has 100 percent occupancy on a total of 1,745 beds.
Moreover, Scion was able to generate $6.0 million in additional revenues for UNLV, including both housing and dining revenues; reduce operating expenses by 35 percent; improve maintenance standards; and drive renewals and new resident contracts up 14 percent and 13 percent year over year, respectively.
Financing sources are also increasingly interested in supporting new P3s. Joseph Stepchuk, director of customer account management with Fannie Mae, for one, said his agency was specifically looking to start becoming involved in public-private partnership deals.
Two basic structures for P3 deals exist-a tax exempt model and an equity model, otherwise known as a ground-lease model-and executives noted that there’s been a trend toward more ground-lease agreements. However, every partnership deal is really a one-off, as universities look to manage a wide variety of internal factors and goals.
“P3s are like snowflakes,” explained one student housing executive. “Every one is different.”
While there’s a lot to love about these on-campus deals-location can’t get any better; lease-ups are less risky, particularly if the university has a freshman on-campus requirement; and returns are on par with traditional off-campus student housing-many warn that P3s come with some strings attached.
The biggest hurdle to clear typically is the universities themselves. A number of executives noted that universities can be bureaucratic and slow to reach any decision. Managing through the process is not only time consuming but requires a high degree of touch. EdR President and CEO Randy Churchey, for example, said his company has one P3 deal that has a standing weekly meeting-every Wednesday, without fail-with roughly 20 people between the two organizations.
David J. Adelman, president and CEO of Campus Apartments, agreed. “Universities are like governments-lots of people, lots of moving parts,” he said. “We’ve insisted on having one or two people who can make decisions. When you get all these departments chiming in, nothing happens. No one at the universities will make a decision for fear of making a bad decision.”