Union-Knox

Enrollment Growth Drives Demand for Public-Private Partnership Developments

by Katie Sloan

The number of public-private partnerships (P3s) between seasoned student housing developers and universities is on the rise, and it isn’t too difficult to see why. Undergraduate and graduate student enrollment is growing at institutions across the United States, and at least a portion of the undergraduate population at many universities is required to live on-campus. This fact alone would suggest that institutions might be looking to add to their on-campus housing stock — and quickly, at that, if their current offerings won’t accommodate the number of new students entering campus each year. 

The desire to move deftly and quickly, coupled with a difficult environment for construction financing, make partnering with a private developer all the more enticing for institutions. What better way to move forward on a project than with an expert in the space that can help navigate challenges — from financing hurdles, to supply chain or labor difficulties — and that already comes with a preferred group of designers, contractors and vendors ready to start as soon as they get the green light? 

And it isn’t just institutions pressing for these projects. The current student population is actively seeking more on-campus living options, according to Julie Skolnicki, senior managing director with Greystar, making an expeditious development timeline even more salient.

“Student and parents are increasingly focused on campuses that offer a high-quality student life experience and compelling return on investment,” she says. “The demand for on-campus housing is further accelerated by an increased desire for the on-campus experience, proximity to academic resources and social amenities.”

“These on-campus supply and demand factors, along with high occupancy levels in the off-campus and shadow markets, have led top tier universities to increasingly look to P3 partners to leverage private market efficiencies and expertise to deliver large complex projects to meet their mission critical housing needs,” she continues.

Contributing to growth

It isn’t just enrollment and student demand driving the pipeline forward for on-campus housing projects, but they are certainly a jumping off point. “We’re seeing enrollment growth, particularly among out-of-state students, driving flagship universities to seek P3 partnerships as a faster and more effective solution for on-campus housing,” says Jeremy Doss, senior vice president of RISE: A Real Estate Co. 

The University of Tennessee (UT) selected RISE as a partner on April 1, 2023. By September, the firm had completed and submitted permit drawings for a 1,950-bed initial phase of development. Early site work kicked off in December with financing secured in January. “Now, we are on track to deliver the concrete and steel structures by August of next year,” Doss says. “Projects of this scale at universities like UT typically take five to seven years under a traditional, institution-led development model. With a P3 approach, we are completing it in just 30 months, assuming and guaranteeing both the schedule and budget risks, and keeping the project debt off the university’s balance sheet.”

And RISE isn’t the only private developer seeing a swell of requests for proposals. “We are certainly seeing an increase in college and university P3 housing procurement activity — in fact, we received four such requests in the 10 days before Thanksgiving alone,” says Jason Taylor, managing partner of P3s with The Annex Group. “That said, it is clear from our discussions with college and university leaders that enrollment growth isn’t the only driver for P3 demand — institutions are also seeking affordability.” 

And if affordable housing is your primary goal, working with a private developer is a great place to start, according to Taylor. “Accessing the private development community’s ability to deliver sooner and at lower costs leads to lower student rents,” he says. 

“With off-campus rent increases having accelerated in recent years, the need to replace aging on-campus housing facilities is growing,” adds Taylor. “And almost every public, flagship institution is enrolling more out-of-state students than they did a decade ago. Delivering affordable housing options is a key to retaining your student population and for workforce recruitment.”

Skolnicki agrees, noting that on-campus supply has been impacted by everything from deferred maintenance and functional obsolescence of aging facilities, to stalled projects caused by supply chain challenges, labor shortages, inflation and capital markets dislocation.

The benefits of partnership

Quick work and student housing prowess are obvious boons when institutions look to work with a private developer, but those aren’t the only benefits of a P3. They also minimize risk. “We continue to see an active P3 market across all university profiles and expect this demand to continue because the model allows universities to meet housing demand while reducing risk,” says James Wilhelm, chief development officer with ACC. 

“As a university partner, we share the challenges of financial feasibility for on-campus projects and focus on balancing four key components: affordable student rental rates, development cost, operating expenses and cost of capital,” he says. 

And financial feasibility is a huge deal in the current environment, as financing for new builds has at times been challenging to procure — even for the most seasoned developers in the space. 

“Many universities implement P3 strategies as a cost-effective alternative to financing,” says Wilhelm. “We present universities with various financing options, including direct investment through our proprietary American Campus Equity (ACE) program, project-based tax-exempt bond financing and other project-based options. We provide the university with all financially viable options and allow them to select the model that best fits their goals and objectives.”

And though financing has been challenging, it is not as difficult an environment as many other sectors of commercial real estate are facing, according to David Yeager, CEO of Radnor Property Group. 

“In higher education, we have seen a shift towards more tax-exempt bond financings versus equity transactions,” he says. “Tax-exempt bond maturities are typically 35 to 40 years at fixed interest rates, and longer-dated rates have generally been more stable than the short-dated rates used in conventional construction loans.” 

P3 projects undertaken by Radnor Property Group are typically funded with 100 percent equity, allowing the firm to evaluate both types of capitalization structures and determine which strategy fits best with the goals and needs of its partners, according to Yeager. “Cost inflation and elevated rates have created challenges in our mission to optimize rent affordability,” he adds. “Some of our partners have even offered more support (both financial and non-financial) to projects to ameliorate the effect on students.”

On-campus trends

The most significant trend in current on-campus projects is, to no surprise, affordability. “The constant, driving need to maintain affordability is foundational to most current on-campus housing trends,” says Brad Noyes, co-president of the higher education practice at development advisory firm Brailsford & Dunlavey. “In response, unit size, selective amenities, modified construction standards, shared operating services and careful site selection are continuing trends that seek to maintain affordable rental rates.”

The popular amenities on-campus today are geared towards fostering student success — both academically and personally. “This includes amenities focused on providing ample opportunities for studying, like lounges with varied individual and group study seating, and the inclusion of maker spaces and equipment,” says Taylor. “It also includes a focus on the principles of healthy buildings like ventilation, air quality, noise reduction, natural light, security and thermal health.”

Amy Aponte, vice president of Balfour Beatty Campus Solutions, agrees, noting the firm is seeing a growing commitment from its university partners to student wellness. “At one campus, we undertook an iterative process to fine tune the use of flex space in a new development, which became a physical ‘practice field’ for the university’s wellness model,” she says. 

This included an indoor bouldering experience connected to the outdoors with operable garage doors, allowing students to engage with one another device-free. “Students can downshift from daily stressors by moving their bodies together, teaching and supporting one another and challenging their minds and physical abilities,” she says. 

Mixed-use developments including components that are not traditionally synonymous with a residence hall are also growing in popularity. “We’re seeing more student housing developments that include athletic arenas with parking, hospitality and conference facilities, workforce and multi-generational housing and projects that add placemaking and include retail, dining, housing and game-day venues for university athletics,” says Wilhelm. 

Jay Pearlman, senior vice president of advisory services with The Scion Group, agrees, noting that academic components in particular are growing in popularity. “This goes beyond living-learning communities and often includes multi-use space, classrooms and presentation venues,” he says. “In Scion’s experience, this trend is driven both by the desire to increase integration between academic and residential experience and the goal of efficient use of capital and project-management resources.”

But a lot of the success of a development really comes down to the amenity of location, according to Skolnicki. “The on-campus location and where the residence hall is in proximity to academic and collegiate community resources has always been the most important amenity,” she says. “That has proven to be even more important now as students are focused on immersing themselves in campus life.”

With location as a key amenity, universities are unlocking the value of existing land by investing in the development of academic, student support and campus gateway spaces at the street level in addition to residential components above, she adds. “This allows the campus to expedite these projects by including them in the P3 versus waiting for a donor or a spot in the capital planning / budget cycle,” she says.

And while college and university interest in P3 projects is likely to continue to grow, Noyes believes another burgeoning trend is that growth will likely be moderated by ongoing feasibility challenges resulting from high construction costs and interest rates. “The P3 partnership market will also need to grow in capacity and innovate to align with a very rapidly changing higher education context,” he adds. 

An increased supply of on-campus housing could also result in local municipal zoning changes, according to Wilhelm. “This would affect area landlords and the development of both new off-campus purpose-built student housing — replacing shadow market vintage housing options — and workforce accommodations,” he adds. But for now, the outlook for public-private partnership projects in student housing is bright.

Katie Sloan

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

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