The SHB Interview: Bob Shepko

by Scott Reid

Building a student housing division for international real estate giant Balfour Beatty was a logical next step for Bob Shepko, an industry veteran of many years.

When the British company decided to enter the student housing sector, it tapped Shepko — who was working on the company’s military housing business — to run it. Shepko is no stranger to student housing, having spent time at NACUBO, Anderson Strickler and GMH earlier in his career. In four short years, the company has made a major impact on the on-campus purpose-built student housing business, with projects across the country. SHB recently caught up with Shepko to hear about his success — and Balfour Beatty’s.

SHB: How did you get into the student housing business?

Shepko: I’ve essentially worked in and around higher education for my entire career. My first job out of college was with Cambridge Associates, a company focused on college and university endowment investing. From there, I went to NACUBO [the National Association of College and University Business Officers] where one of my projects involved creating a panel of experts on outsourcing in higher education. At one of those sessions I was co-presenting with someone who introduced me to Joe Coyle, who was with GMH at the time. Joe was looking for someone to start up an on-campus housing program for GMH. I took the job, and while I’ve moved companies, I’ve been in that sector 15 years.

SHB: How did you come to your role at Balfour Beatty?

Shepko: After about five years with GMH, I went to Anderson Strickler with Greg Strickler and Linda Anderson. I then went back to work at GMH on the military housing side of their business, partially because they had won a project near my home. Having left GMH on good terms, I was excited about the opportunity to get back into the development side. In 2008, Balfour Beatty purchased GMH’s military housing business and they were looking to diversify into other areas, with student housing being a natural progression. With my higher ed background, I was tapped to take on that responsibility and grow a new business.

SHB: How has Balfour Beatty built up its student housing platform?

Shepko: The business plan was put together in September 2010. We decided on an organic growth program, rather than an acquisition strategy. We had significant capabilities to draw from, including a construction group vertically integrated with our development side, as well as our investment program. In addition, our property management business had a lot of student housing operators within it. We were able to pull together these resources to develop a unique value proposition for the market and create a niche between the publicly traded REITs and the mid-sized independent developers. We have access to capital from our balance sheet that we can bring to the table, and we are not necessarily constrained as much as the publicly traded REITs are. We work solely on-campus, which is specific to our program. We’re not competing with our clients in off-campus developments. We’re focused almost exclusively on public-private partnerships.

SHB: What’s been the success rate so far?

Shepko: Florida Atlantic University in Boca Raton was our first project. It is what launched our platform. From there, we’ve grown through relationship-driven opportunities. At Lake Forest College [in suburban Chicago] we completed a developer-led program. At the University of Iowa and the University of Nevada-Reno we have completed two graduate housing programs. We’ve had notable success in Texas, both at Tarleton State and Texas A&M in College Station as well as Houston Baptist University and University of Texas – Dallas. We’ve had a successful few years as we’ve grown our strategy. When you compare it against our business plan, we have pretty much doubled where we thought we would be at this point.

SHB: What’s the advantage that Balfour Beatty has? What allows you to win business?

Shepko: Part of it is our overall strategy. Also, we’re not locked into parameters. While student housing is a primary thrust for what the enterprise of the organization is doing, it is not the only sector where we are active. We will look at all asset classes on a campus where there may be privatization opportunities, whether it’s parking structures, academic buildings or other auxiliary support organizations or projects. That differentiates us from many of the competitors in the marketplace. It allows projects like University of West Florida, or the RFQ that is out now at the University of California at Merced, to think about a holistic approach to campus development. We call it programmatic solutions rather than project solutions. While campuses will still go to the market and procure projects, we try to help them think about it from a programmatic aspect. It is a little different from how others look at campus plans.

SHB: What types of programs are universities asking you to develop and build?

Shepko: Some of them are multi-year, tenured programs. Plans like those at the University of West Florida and Houston Baptist University take time because of the various components they have, including retail. We see academic buildings as part of that. Our project at the University of West Florida has athletic facilities attached to it. Again, it’s trying to holistically think from a master development standpoint; the client can advance their goals and vision for the entire campus, not just housing.

SHB: How do you create successful housing projects with retail? The criticism of these is that they are not successful year-round, and sometimes not even nine months of the year.

Shepko: It’s a struggle every campus has. Geography as well as the campus’s mission and culture will drive their level of success. A project that has 40,000 square feet of retail in the middle of campus that has no other market other than the university’s 10,000 students doesn’t make economic sense. Developers have to make sure campuses understand the nature of retail and the type of retail that is best suited to those types of facilities. It’s really about understanding the definition of what retail is. Is it market-based retail with storefronts, or ‘retail’ that will be supported by office space and other enterprises?

SHB: We’ve really seen the use of public-private partnership structures increase over the past few years. Where do you see PPPs going in the future?

Shepko: I’m trying to get away from using the phrase ‘public-private partnership’ because so many people look at it through so many different lenses. Some see it as a financing solution only; some see it as a procurement methodology; there’s just so many ways P3 is seen. I tend to look at it as an ‘alternative delivery model,’ because that says to me that whether it’s a public or private institution, whether they’re looking for creative financing alternatives or looking for streamlined development delivery processes, it’s an alternative to whatever they currently have in place. It can be different types of financing or a different method of development. Where do I see this going? I think what you’re going to find is a lot more schools looking to bring more of the balance back on campus between student success rates and what housing can do to enhance student success rates. A lot of states are going to performance-based funding as part of their budget requirements. The greater ability a campus has to help support student success, the better off it will be economically. I personally see more, to use my earlier term, alternative delivery models, (PPP) efforts going to help support activities of student housing and ancillary facilities to get students back on campus. In some states, you’re seeing the off-campus model solely supporting that. Unfortunately  some campuses just don’t have the footprint available to build or replenish the kinds of asset and unit types they need to support everyone from their first-year experience through graduate and post-graduate work on campus.

SHB: Do you think P3s are going to be different so they are not structured based on a real estate foundation or what have you, and more of a partnership? Also do you see private colleges getting into P3s more?

Shepko: I think you’re going to see more institutions looking at the programmatic element of delivery on their campus. They may think they have a shortfall of housing, but housing is one step in their delivery of a master plan for their success. If there’s a way to bundle the programmatic aspect of residence life, tied to an academic learning environment or some other alternative services — whether they are public or private — they’re going to need to find a way to finance it, operate it, design it, build it, and look at it within its strategic element of the campus master plan, as well as a master plan for academic growth. I hope the industry starts absorbing some of the mission to help campuses bridge the physical constraints of assets with the academic success and programmatic success. Right now, I think there’s a fair amount of isolation that exists between the two worlds. Universities are more concerned that they need a building immediately and not concerned with the overall impact that building will have on the campus for the foreseeable future. They should take a closer look at how this new asset will help support the programs they have on offer now, and the ones they plan to offer in the future.

SHB: What do you feel the mission of on-campus housing should be? And where are we — and universities — in fulfilling that mission?

Shepko: That’s a big question. It comes down to what that campus is meant to be. Some campuses are meant to serve the local community or be commuter based; those are really meant to be an alternative to students who don’t have the means or desires to attend college at true residential campuses. Other campuses are residential by nature, in that their whole learning curriculum, and environment of scholars and residents, revolve around the housing model. When you think about community colleges today, a lot aren’t just offering associates degrees or certificates anymore; many are starting to offer four-year programs. The mission of those schools and the scheme of higher education have different means and methods. There is growth potential in community colleges, where residential components may become another key element for their missions. At some colleges, housing adds academic support that helps shape and mold the individual from the first-year student all the way through, but ultimately housing has to fit into the overall program for the campus.

SHB: How sophisticated do you feel like colleges are when it comes to housing?

Shepko: It really is a spectrum. There are some that are approaching housing strictly from a financing methodology; there are some that are focusing on it because the governor of the state told them they must look at PPPs before other options. It’s not nearly sophistication so much as it is perspective. At Balfour Beatty we try to make sure we understand the perspective that the client is coming to a project from, rather than the sophistication level. I’m finding more and more that if the request is from a procurement office, it has a very different feel and potential outcome than it does if the university is choosing a partner based on qualifications, fit and feel and the ability to get things done. We’ve seen them both ways.

SHB: How challenging and rewarding has it been to build a new student housing platform? And, I should add, one that has quickly become a player in the P3 world.

Shepko: If I didn’t like challenges, I wouldn’t have gray hair. It’s been an incredible opportunity. We had some level of our platform established with our military housing program. We have three major components to our organization:  investments, construction, and services. The campus side falls under investments, but we’ve been able to benefit significantly from our integrated construction and services businesses. Our organization is based in the United Kingdom; the higher education system here in the U.S. is different than that of the U.K. When you talk about the nearly 5,000 campuses in the U.S., that doesn’t resonate with the folks in the U.K., and you have to walk them through what’s different with the system, the program and everything else. That said, they understand now how important student accommodations — as they call them — are and they wholeheartedly support this aspect of our business. So much so, that we also started a platform for student housing in the U.K., and it has already been awarded two projects. Most recently we were awarded our first student housing project in Australia at the University of Wollongong.  As we grow the platform, we use best practices across the business, but they always come back to the U.S., where we have a more established program. We’ve added some value globally but I think by nature, we’ll see it become a larger part of the Balfour Beatty enterprise.

SHB: How does the student housing division of Balfour Beatty fit into the organization as a whole?

Shepko: I like to say we’re an integrator. Given where we fit in and our diverse capabilities, we bring a value-add perspective with a vertically integrated, comprehensive offering. Before we existed, a construction services team could build a building on a campus, but they didn’t have the tools to offer financing, property management, etc. That’s what we bring via our Balfour Beatty Campus Solutions brand. We bridge for the gaps between investment and development services to enable a more holistic approach.

SHB: What have you enjoyed about building this business?

Shepko: What makes me go to work every day and what I’ve enjoyed is that no two days are the same. It’s also the people. Fortunately, we’ve had great partners with our sister companies, architects and other contractors, and the financing community. We have had the ability to hand-pick our own team. In doing that, we’ve had the ability to create a dynamic environment to work in. We have fun and you can’t lose sight of that.

SHB: How easy has that been to build a team in this environment?

Shepko: Loyalty in the student housing business is amazing. I think about the number of people in my years and decades and there’s not only a sense of loyalty, but also a sense of pride in the work you do. I think we successfully demonstrated that to some of our key people, Jim Short and Josh Smith in particular. They both came to the company with years of experience and high energy. They had the vision to see where Balfour Beatty was heading and that it would be a risk-return and risk-reward opportunity. We’ve been lucky. We’ve supplemented that on the delivery side with our development team; our unique culture and work environment have allowed us to attract those folks who probably wouldn’t have otherwise left great companies or would have been tied to a geographic location.

SHB: Once it’s developed, are you involved in the management of an on-campus property?

Shepko: Yes, we are — largely through our Balfour Beatty Communities business. We have a buffet of services and it’s not one-size-fits-all. We are involved or not involved based on a university’s situation. On some campuses, we’ve done developer-assisted projects; we’ve helped a smaller school deliver on a program because they don’t build housing that often. We have also done larger projects that involved all services of design, build and operations. We’ve been successful at piecing it together; it’s about relationships. Size and scale aren’t the only driver.

SHB: Your team is not centralized in one office. How do you work together?

Shepko: The Balfour Beatty Campus Solutions team is located in four regional offices. We do a lot of communication by phone and on-site, because we do travel a lot. Good for us that Balfour Beatty is a global firm and has offices in most every major market.

SHB: Outside of work, what do you do for fun?

Shepko: As much travel as I do, I spend as much time as I can at home. With three daughters and their schedules and activities, when you can be home to see their volleyball or basketball game, you do that. I like to tinker with remodeling here and there. My wife and I are celebrating our 25th anniversary next. I find it rewarding just to spend as much time as I can with my family.

— Randall Shearin

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