Lexington, Ky. — Aging dorms and tight budgets make move ‘natural’ next step.
Donovan Hall on the University of Kentucky campus will be demolished and rebuilt in EDR’s revitalization and expansion in Lexington.Lexington, Ky. — Last week’s announcement that the University of Kentucky would be partnering with Education Realty Trust (EDR) to privatize its on-campus housing has the industry wondering how a move like this will affect other colleges and universities and private developers.
The deal calls for EDR spending $500 million over the next seven to 10 years to bring the number of beds at UK to 9,000. The student housing REIT would build, own and manage the entire portfolio on land leased from the university.
“My first reaction is that this is probably a natural progression for the industry and for higher education,” says Jason Taylor, vice president of consulting services for The Scion Group, Chicago. “It seems the next natural step would be that universities would see it makes sense not to have a partner for a one-off deal. Colleges and universities are debt-constrained, and student housing is one asset they can look to.”
While the move could be lucrative to some private developers, others see the chance of more Tier 1 schools following UK’s lead as a threat.
“The ramifications of this are potentially negative for my business,” says J. Wesley Rogers, president and CEO of Athens, Ga.-based Landmark Properties. “We are strictly off-campus developers. Kentucky will have a net increase of 3,000 beds. When we look at existing markets, we look at the existing stock of student housing, so looking to build off-campus in Kentucky makes that market less attractive.”
Many are calling the privatization of on-campus housing at a Tier 1, land grant university a watershed moment in student housing business, and there is some expectation that similar universities will follow. But the move is not without its risks for both parties.
“We have a saying with our clients that you can privatize your housing, but you can’t privatize your relationship with students and parents,” Taylor says. “Now there’s someone standing between the university and their customer, which is the student and the parent.”
The deal promises to be somewhat of a test case to whether housing can be successfully outsourced at a large public university. “Each component relies on the other to be financially solvent. To move from construction to renovation depends on one part being efficient and blending into the other. If there are any hiccups and you start to get off that timeline, what is the ability of EDR to recoup? It will be interesting to watch as the particulars of the Kentucky deal become known.”
– Lynn Peisner