Only a few developers in the student housing space have successfully managed to have strong programs on- and off-campus. Gilbane Co. is one of them — and the company has a successful contracting business to boot. The 150-year-old company is a competitive player in the public-private partnership (PPP) development business, active on a number of campuses nationwide. It also has a robust off-campus development business, though selective about when and where it builds properties. SHB recently caught up with Russell Broderick, Gilbane’s executive vice president, who leads the company’s on-campus P3 business as well as its off-campus development.
SHB: Can you let our audience know about Gilbane and how you fit in the commercial real estate industry?
Broderick: Gilbane is a family-owned company that is 150 years old, started right here in Providence, Rhode Island. We started as a cabinetry shop and have evolved into one of the largest construction and real estate development companies in the U.S. Our structure has a holding company, and underneath that we have two separate companies — Gilbane Building Company and Gilbane Development Company. Gilbane Building Company is a traditional general contractor that builds for any number of developers, universities and other clients. Gilbane Development Company has four verticals where it is presently active. First, we are very active in conventional multifamily housing; Alastair Jenkin is our senior vice president of multifamily housing. He is based in Austin, Texas, but we also have offices for multifamily in Florida, Nashville, Raleigh, Dallas, San Antonio and the Mid-Atlantic region. We are also active in affordable housing, specifically in New York City, Washington, D.C., and Raleigh. Our affordable housing business is run by Roj Robinson, who just joined us from Goldman Sachs. We have developed and acquired about 8,000 affordable housing units. A third area is public-private partnerships, which is where the vertical integration between our construction and development divisions really shines. This division is agnostic as to what the building type is, so we have done everything — courthouses, K-12 schools, student housing, medical office buildings, etc. — for institutional clients. We are working right now with the University of South Carolina to develop a new medical campus; and we are working on a $500 million program with Prince George’s County, Maryland, that has six elementary schools. Purpose-built student housing is the fourth area where we are active. We have developed 15,000 beds in about 20 to 25 different properties. We have developed student housing everywhere from Corvallis, Oregon, to Arizona to our backyard here at Brown University in Providence.
SHB: What is your role and responsibilities, in light of your recent promotion?
Broderick: I’m now the executive vice president, and with my promotion I will continue to run our purpose-built student housing business and our public-private partnership business. With our PPP business, we are active at Eastern Michigan University, the University of Idaho and a few other colleges. I also run our asset management business across the company. In essence, I am running two of our four verticals and our asset management business. The asset management business has grown a lot due to the heavy touch that is required in affordable housing. We also asset manage our student housing as well.
SHB: Can you tell us about the projects that
Gilbane has underway right now?
Broderick: On our off-campus development side, we have three projects under construction right now. We are delivering this summer at Syracuse University. In summer 2024, we will deliver a project called ‘The Hive’ near the University of Iowa. At Cal Poly Pomona, we will deliver a project called ‘The Current’ in summer 2024 as well. We will break ground this July or August on a project called ‘Vibe’ near the University of Central Florida (UCF). We also have several prospective projects at the University of California at Berkeley, Arizona, Cincinnati and a few other markets. On our P3 side, we are active at Eastern Michigan University, where we are delivering renovated beds this summer and 700 beds of new housing. Gilbane Development will actively manage the entire portfolio of student housing on a go-forward basis; that includes about 3,000 beds of on-campus housing. We are undertaking a similar program at the University of Idaho, where we were just awarded a master development agreement. That program involves several different phases of different types housing, not just student housing. We just had our kickoff meeting for that project in the past few weeks. We have another ongoing project at Ohlone Community College in California. We are developing 600 beds of on-campus housing there.
SHB: Can you go into more detail on your public-private partnership business?
Broderick: There has been a flight to quality in the P3 business. That is due to some P3s not executing well because there have been, perhaps, a few too many cooks in the kitchen. Being vertically integrated where we act as developer, contractor and property manager takes parties out of the equation, especially because we have skin in the game for a long period of time. That is important to institutions who are looking for surety of execution. That flight to quality from the institutions has been very helpful to us.
SHB: The geographical diversity of your projects is impressive. How do you find deals?
Broderick: As a development organization, our offices have been here in Providence. We have a satellite office in Washington, D.C. Beyond that, Gilbane has 40 offices across the country. I have employees working in Chicago, San Francisco, Arizona and many other places. We network into those markets with our construction division. The development division has more of a real estate interest, so we get to know the local universities and real estate communities. Through those relationship, we find a lot of on- and off-campus opportunities. A lot of our connections come through our Gilbane network. We are also well known in the off-campus circles, so if someone is considering selling a site, we usually see it.
SHB: Financing is difficult. What has Gilbane’s model traditionally been to finance its developments? What is your take on the capital markets?
Broderick: We traditionally finance through our relationship lenders. A lot of our lenders have been with us for 50 years or more. Those relationships are very strong. We focus on our balance sheet; our lenders can look at that and feel very comfortable. On the equity side, we have traditionally used our own capital. In 2020, we began to bring in outside equity through limited partnerships. We have continued to develop our relationships with various players on the LP equity side. The capital markets now are tricky. There are a lot of folks who are looking at risk adjusted returns and wondering if development fits in those buckets. We are having a lot of engaged discussions with different equity sources. If equity does not show up on some of our projects, we can still fund those with our own capital so we are not constrained. As our lenders look at their book of business, they look at the long-term relationship they have had with Gilbane and our balance sheet. We are still getting term sheets. They are a little lower leveraged than they may have been, but they are still coming through. We are scheduled to close a loan on our UCF project in the next few weeks.
SHB: Are the interest rates and financing constraints forcing you to table any deals, or are you able to get around that?
Broderick: It is hard to make deals pencil. We have moved up our yield on cost targets quite a bit. We are finding some opportunities and pull the levers to make them work. We pass on deals where we cannot make them work. Just 12 or 18 months ago, many of those would have been no-brainers to do. We have had to retool projects to make them work. Our project at the University of Central Florida was one of those; we had to adjust the project through design and some creative thinking to get a better yield on cost. We have moved our benchmarks to what is acceptable to our investment committee. As a result, we are saying no to deals more often.
SHB: How much business does Gilbane do on the P3 side versus the off-campus pure development side?
Broderick: The public-private partnership business has expanded in recent times, although we have done public-private partnerships for 40 years. We didn’t always have a dedicated vertical to that business. We did them when the opportunities were there. Now, we have a dedicated team that seeks, cultivates and services those opportunities, whether they are universities, cities, states or counties. The real advantage to these entities is the operation of the asset; we handle that so they do not end up with deferred maintenance. While the P3 side is the most active, we are still active on the off-campus side with many projects in the works. We probably have more than half of the 13,000 beds in our pipeline coming from our purpose-built off-campus development division. On the P3 side, we are agnostic on how the projects are financed. We try to understand the client’s needs and why they are using a P3 before crafting a financing solution to meet their objectives. On the off-campus side, it is traditional real estate development where we are trying to meet our investors’ returns while providing a great community for our student residents.
SHB: What is your take on the overall climate for student housing development right now?
Broderick: The development numbers tell the story. We were at a peak of around 60,000 beds a few years ago and now we have about 15,000 beds projected in 2023. The supply side is going to significantly pull back. Sites are getting harder to find and deals are getting harder to pencil. At the same time, you are seeing stratification within higher education. Flagship schools are grabbing the lion’s share of enrollment growth. The markets that need housing will continue to need housing. Some of the regional or secondary universities that will not be able to grow as quickly from an enrollment standpoint may not need housing. At those flagships, there will be more demand for housing and more developers looking to build. From an ownership standpoint, lots of owners are looking at this growth and realizing they do not need to exit because the growth is going to come through increased rents due to strong demand and short supply. We might see some situations where it almost becomes a monopoly for a landlord that owns all the Class A product.
SHB: Has Gilbane considered buying properties?
Broderick: We are buying assets in our public-private partnership business. We are monetizing assets for universities and other entities. We have also done that in the affordable housing sector. We have worked with the New York City Housing Authority to acquire several portfolios of housing from them. With that expertise, you will see us start to look at acquiring off-campus purpose-built student housing at some point. But, to date, we have not purchased any off-campus student housing.
SHB: What has been your model with off-campus student housing?
Broderick: We have been opportunistic with our off-campus developments. We have owned properties for six or seven years before selling. We have also sold a few in shorter hold terms. It may end up gravitating toward a longer hold period depending on the market. We build everything with the intent that we will hold it long-term.
SHB: How do you manage your properties?
Broderick: On-campus, Gilbane Development Company has built out a robust management platform. We create a very tight relationship with our university partners. We don’t want any layers between us and the universities. We want to make sure we are meeting their needs. Off-campus, in light of the fact that we have been opportunistic with how long we hold properties, we have chosen to have third-party managers. We have utilized several of the large managers who specialize in student housing. We don’t see any change there, at least not for the next 12 to 18 months. We have a robust asset management team that is very hands-on with our off-campus properties. We are much more involved in the management of our off-campus student housing than a typical investor. We have a director of leasing internal to Gilbane that is on weekly, if not daily, calls with our managers. We also have a director of asset management who has weekly calls with our managers. We also have monthly roll up calls with a larger internal team with our third-party managers. We have worked with a lot of our third-party managers for quite a bit of time so we have strong relationships there. We love to create our own brands and we like to get involved in the marketing. Our properties are each independently branded.
SHB: What trends are you seeing, on-campus and off-campus, with architecture, design and amenities?
Broderick: On-campus, we are seeing a holistic approach to housing. Universities want to be able to renovate some beds for low-cost options for students. That could be as simple as new carpet and painting a building. Heavier renovations are also taking place where we are renovating lobbies and adding amenities like game rooms and kitchens. Universities also want to be able to provide apartment-style housing for students or something close to that for upperclassmen. They are really trying to have all types of housing on-campus through a master development agreement. They want to update, renovate and add housing. A lot of universities are also demolishing obsolete residence halls. Many have properties where the cost to renovate will not justify the return.
Off-campus, we take a market-by-market approach with design and amenities depending on what else exists there. Amenities have become much more sophisticated. The fit, finish and feel for off-campus housing is not as collegiate as it once was. It is more high-end multifamily. In terms of the layouts and spaces, that seems to change by generation. The upcoming generation is seeking social engagement. They want to have areas where they can fully engage with each other. They want to do that, but then they want to have their private space too. I have three college-aged children and that is what our house is like. Half the time everyone is together and the other half they are all in their own rooms. Student housing spaces, in general, are becoming more multi-purpose. You may have a large clubroom, but it also has spaces — like pods and alcoves — within it that can be used for more privacy. Elements like furniture are also becoming more important in our urban, infill student housing projects. We are being innovative with how furniture can help solve space issues. The balance with off-campus properties is that you have to create a livable space with bespoke amenities.
SHB: Do you see similarities in what Gilbane does with conventional multifamily and student housing? Do you see shared trends in both sectors?
Broderick: Alastair Jenkin, who runs our conventional multifamily business, is very in touch with our student housing business, just like we are close to what that group is working on. We have what we call ‘red team reviews’ where both groups will look at each other’s plans at an early stage for commentary. There’s great information sharing. Of course, there are intracacies to each line of business. What drives and makes a multifamily successful is a bit different than what will make a student housing property successful. I would say we have a strong interactive dialogue where we are staying abreast of what the divisions are working on.
SHB: Wrapping up, what do you like to do to decompress and have fun?
Broderick: I spend a lot of time with my family. I have a very active family. I love to mountain bike, downhill ski and run. Rest and relaxation is also important.
—Interview by Randall Shearin and Richard Kelley
This article was originally published in the May/June issue of Student Housing Business magazine.