Development Costs Grow with Enrollment On-Campus

by Katie Sloan

Undergraduate enrollment at colleges and universities is on an upswing post-pandemic. This number grew by 1.2 percent in fall 2023, marking the first increase since COVID, notes the National Student Clearinghouse Research Center. This is great news for the higher education sector, which was hit hard during and immediately following the pandemic. 

The problem now is finding ways to offer these students — particularly the incoming freshmen — housing accommodations when room is scarce and costs are higher than ever. 

Von Stange, assistant vice president for student life and senior director of university housing and dining at the University of Iowa, says schools are in a tough spot. 

“A variety of campuses are trying to figure out how to respond to aging facilities and increasing deferred maintenance costs,” he explains. “Many spent their reserves on refunds during COVID and are just now rebuilding those reserves. Universities are also trying to be true to their educational mission through their housing offerings, while considering the amenities arms race with the off-campus market.”

The amenities offered in off-campus housing may not be everything, but Jay Pearlman, senior vice president of advisory services at The Scion Group, knows they can be a large part of the equation for students and their parents. 

“Much has been written about the shifting preferences of Gen Z, and the soon-to-arrive Gen Alpha, as they place increasing value on academically related amenities, overall wellness and affordability,” he says. “But with the costs of capital and construction both significantly elevated, fewer projects can pencil or achieve feasibility.”

Growth on-campus

Students are coming — regardless of whether or not universities are building — so the options become house more students or lose those dollars to off-campus housing. Of course, there’s always a third option if housing simply can’t be found: lose that student entirely.

“With enrollments growing at many larger universities, there is an immediate need for additional beds,” Pearlman continues. “High interest rates and inflation in building costs have pushed many on-campus projects beyond the point of feasibility and raised barriers to entry. Yet, these financial pressures are precisely what makes alternative financing attractive to institutions, which are selective about their finite debt capacity.”

This type of alternative financing tends to come in the form of public-private partnerships (P3s). It’s something the University of Tennessee relied upon when it received 39 percent more freshmen applications for the fall 2023 semester than it did the previous year. This increase, coupled with a lack of on-campus housing, drove the university to reduce its admittance rate by 22 percent. 

The has school partnered with RISE: A Real Estate Co., which recently commenced Phase I construction on a 2,000-bed, $220 million high-rise project that will be delivered by August 2025. A 1,000-bed, $125 million second phase will begin construction later this year for an August 2026 delivery.

Jeremy Doss, senior vice president of RISE, notes this project was all about timing. Or, rather, timeline.

“Speed to market was Tennessee’s number one driver for this procurement with their freshmen applications rapidly expanding,” he says. “This speed to market not only avoids the opportunity cost loss by delivering beds a year — or years — later, but also minimizes project risk exposure to continued material and labor cost escalations, as well as interest rate uncertainty.”

Michael Cipriano, senior vice president of development at American Campus Communities (ACC), also sees the value P3s can bring to universities when money is tight and demand is high.

“We think P3 helps forward-thinking institutions focus on their core competencies while delivering the best possible experience for their students,” he says. “They are a way for universities to bring housing or other student life projects to fruition on a faster timeline and, in most cases, for a lower initial cost.”

For an institution, part of delivering the best possible experience means delivering more housing. ACC recently partnered with the University of Utah to do exactly that — aiming to double the number of on-campus housing units over the next decade.

The first project will be built on a parking lot south of the existing Kahlert Village. It will contain up to 1,500 student housing beds when it opens by fall 2026. 

Vennie Gore, senior vice president for student life and engagement at Michigan State University (MSU), notes his school also plans to add more housing to meet demand. He adds that P3s can be a useful tool if universities struggle to achieve what they ultimately set out to do.

“Undergraduate housing must meet the student success goals in support of persistence, retention and graduation,” Gore says. “In addition, a project needs to meet the  long-range programmatic goals. P3s can also provide an avenue to deliver a project for a particular institution that may have land but lack the debt service to deliver the project.”

Student spaces

Both Doss and Cipriano note that interest in P3s has increased on many campuses. RISE’s average P3 deal size has expanded, while ACC is busy working with universities to carve out more of the land referenced by Gore. Or, if that fails, to at least carve out more bedrooms.

“ACC has recently assisted a number of our university partners in looking at the potential renovation or redevelopment of existing on-campus housing, to provide increased density within similar original building footprints,” Cipriano says. “Reconfiguring and optimizing existing housing designs ensures efficient use of rooms and the ability to accommodate more students within the available space.”

Accommodating more students within the available space tends to mean one thing, however. 

“Double occupancy rooms may become triple rooms,” Stange says, speaking about the efficiency trend in general. “The most common way to respond to more students on campus is by increasing the density of current housing stock if already at capacity.”

Peter Trentacoste, executive director of the department of residential life at Louisiana State University (LSU), sees this becoming more common. He also knows freshmen classes are increasing. Still, he remains optimistic LSU won’t have to increase room occupancy, yet.

“We are adjusting the available beds we make available to sophomores and above to ensure that we can meet the size of the first-year class,” he says. “So far, we have avoided tripling. In speaking with colleagues from other flagships, some have already moved in that direction.”

Increased room occupancy does provide accommodations for more students. It may also lower housing costs for those tripled up, while allowing the university to collect more rent from more students. What it may not do is support the academic success that’s championed by both universities and younger students. 

“Campus housing tends to focus on student success and well-being initiatives,” Stange says. “As a corollary, students want more privacy through single rooms and private restrooms.”

Though tripling up may not be the ideal scenario, Trentacoste isn’t a fan of going the all-singles route, either. 

“There were some that suggested we were heading toward singles everywhere and that was the only way we’d survive [post-COVID],” he says. “That take on things was overplayed, in my opinion, as the cost of creating single-bedroom spaces is just too high, especially in our inflationary environment.”

Short, long-term solutions

New housing doesn’t simply spring up overnight. Nor do the funds necessary to build such housing. With that in mind, some schools have had to get creative in solving the too-much-demand problem.

“Flagship institutions are in triage mode to capture and accommodate higher percentages of these freshmen applicants and their requirement to live on campus,” Doss says. “Some are occupying residence hall lounges, quadrupling dorm rooms that are designed as doubles and master leasing properties miles from campus. These temporary measures are far from ideal.”

Yes, universities are so in need of housing that some of those off-campus competitors have morphed into best friends. 

“Perhaps one of the most interesting outcomes of this period is the increased level of partnership we see between colleges and universities and off-campus owners,” Pearlman says. “With enrollments growing at many larger universities, there is an immediate need for additional beds.” 

He notes Scion has been involved in a growing number of master lease conversations and even negotiations to purchase purpose-built student housing assets by several institutions. Cipriano adds that “several institutions” are also master leasing all or a portion of ACC communities that are located near campuses. 

Alternative strategies are all the more important when schools lack room to grow, such as on urban campuses. 

“Some urban campuses are landlocked, so developing housing may require higher density units or perhaps demolishing an older building to construct a new one,” Stange adds.

That’s exactly what’s happening at Georgetown University in Washington, D.C., where ACC is demolishing three structures and replacing them with two, eight-story buildings that can house 740 students. The new Henle Village development broke ground in September 2023 and represents the first phase of the strategic housing plan that ACC developed for the school to advance its housing initiatives outlined in Georgetown’s ‘University Campus Plan 2017–2036.’ The project is scheduled to open in fall 2025. 

“Across the country, university leadership is continuing to develop new undergraduate housing for first- and second-year students in an effort to upgrade and/or replace aging on-campus residence halls that have reached the end of their useful lives,” Cipriano says. 

Additional Georgetown housing initiatives include working within the dense, urban environment that Washington, D.C., exists in. The P3 is developing 55 H Street, which will house 476 undergraduate, graduate and law students, in the heart of the city. 

“Developed on a half-acre lot in downtown Washington, D.C., just blocks from the Capitol and close to the university’s academic facilities near Union Station, this project recognizes that students come to Georgetown University partly because of its built environment,” Cipriano adds. “The design of 55 H Street aims to celebrate the university’s rich heritage while providing a space that is modern and forward facing.”

The project will include retail, a large community center, courtyards and a rooftop common space. 

Trentacoste believes diversifying a building’s functions can be a great way to ensure its long-term success as the various uses drive funds to the school.

“I’ve been seeing a trend toward mixed-use spaces that combine retail, dining and recreation,” he says. “The addition of these can often help with the financial viability of a project and can also enhance the student experience.”

Without this sort of varied safety net, Trentacoste thinks schools may have to continue to watch their budgets. 

“With construction costs where they are, it’s essential that we look at balancing what we ‘need’ versus items that are more on the ‘want’ side of things,” he continues. “For example, say I have a ‘need’ for a classroom and a multi-purpose space.  Do I really need two spaces, or can the classroom convert to a multi-purpose space in the evening for student programming?”

Stange adds that P3s may also serve as a type of “safety net” for some schools. Some may also be classified as a “need,” while other partnerships serve as a “want.”

“I think some universities see P3s as a partner of necessity,” he says. “They can’t do it on their own, so they need a partner to help them out of a difficult situation. Others clearly embrace P3s as a full partner in progress. They see such a partnership as a competitive advantage in recruiting prospective students.”

Regardless of which perspective universities adopt, Stange thinks one thing is abundantly clear: today’s challenges will leave the door open for P3s for the time being.

“As long as state funding of higher education continues to erode, costs of attendance subsequently increase and housing operations face unfunded infrastructure needs, universities will look at P3s as potential suitors,” he continues.

These costs can be tangible. RISE built the 548-bed Maple Hall at New Jersey Institute of Technology (NJIT) over a 15-month construction phase that wrapped up just in time for the fall 2022 school year. Though the community opened at full occupancy and continues to have a waitlist, the P3 weighed delaying the project for a year. 

The results speak for themselves. 

“With year-over-year inflation numbers of U.S. construction markets now documented, this 270,000-square-foot urban mid-rise housing facility’s total cost of $96 million is estimated to have been more in the range of $130 million to $135 million if it had been delayed a year from its spring 2021 construction start and August 2022 delivery as earlier contemplated,” Doss states. “With the recent hyper-escalation we all witnessed, everyone should now have a much better understanding of how time can kill a project or, at least, require it to completely change in order to get done.”

Unfortunately, changes in price, pandemic restrictions and enrollment can’t be predicted. Even when some factors are known, they can still catch housing officials off guard. That’s why Stange’s best advice is prepare for anything — including the worst.

“If campuses strategically increased enrollment, hopefully new housing was built in advance of those increases,” he says. “More often than not, larger first-year class sizes come as a surprise to housing officers.”

Nellie Day

This article was originally published in the March/April 2024 issue of Student Housing Business magazine.

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