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Business Officer Magazine

Alleviating the Housing Headache

Not enough beds, not enough time. Some institutions are finding relief through public-private partnerships.

By Anna Marie Cirino

At a recent NACUBO program at the University of Maryland, College Park, business officers, housing officers, housing developers, and real estate and finance experts discussed this increasingly popular option for student housing. The program included a tour of two successful student housing projects—one adjacent to, and the other embedded on, the College Park campus. Projects at other institutions were also discussed, including the University of California, Irvine, where the largest public-private student housing project in the United States is currently taking shape. The experiences at these campuses reveal much about the issues many institutions must address to make public-private partnerships in student housing thrive.

Expansion at the University of Maryland, College Park

When the University of Maryland’s College Park campus underwent a transformation in the mid-1990s, demand for student housing grew exponentially. According to Patricia Mielke, assistant vice president of student affairs, several major impediments threatened the institution’s ability to house upperclassmen in early 1998. Because the University System of Maryland had already allocated its debt capacity, the College Park campus could not avail itself of its bonding authority for housing. Nor could it build quickly enough to open a building in fall 1999, given state and university procurement requirements.

Rating Agency Perspective

The growth of the privatized student housing sub-sector is immense, with more than $1.5 billion debt outstanding, according to Wendy Berry of Moody’s Investors Service. At the NACUBO program, she addressed how transactions for public-private partnerships in student housing are treated in higher education credit analysis, which characteristics are needed for an upgrade, and the factors that influence treatment as indirect debt. Among those factors are whether

  • the institution shares in the receipt of residual revenue from the facility;
  • the facility is located on campus with a ground lease agreement;
  • the institution promises to refer students to the facility or agrees to fill the facility before its own housing;
  • the institution agrees to lease a predetermined number of beds from the facility;
  • the institution agrees to collect rent or to withhold transcripts for nonpayment; and
  • the facility is exclusively for the use of the institution’s students.

Upgrade factors are based on performance and legal characteristics. Performance factors include whether the institution has a strong student market position; sound financial performance of the project; strong demand as evidenced by full or close-to-full occupancy; the ability to raise rents without affecting demand; and an effective maintenance program. Legal factors include the existence of a first-fill covenant; close institutional affiliation; the level of debt service; reserve and replacement requirement; reliance on separate summer leasing; and covenants on new student housing that may affect housing demand.

Adjacent new construction. In spring 1998, Ambling Companies approached the university about a seven-acre private parcel of land that Ambling had optioned contiguous to six empty acres owned by the university across the street from its campus. With an immediate objective to move upperclassmen out of dorms needed for freshmen, the university performed due diligence and decided to sole source with Ambling. The Ambling parcel was purchased from bond proceeds at closing, with the university simultaneously taking title and leasing it to the Collegiate Housing Foundation, a 501(c)3 tax-exempt foundation. CHF then engaged Ambling to develop University Courtyard, a seven-building student housing apartment complex that opened in fall 1999 and now houses 704 students.

Ambling operates all aspects of the garden-style apartments with input and consultation from the university. For instance, the university assists in developing the student life program and specifying staffing types and ratios. Also integral to the project’s success are the campus police, voice, data, and shuttle bus services that are made available to students. Since opening, University Courtyard has enjoyed full occupancy each year—reaching 100 percent in only four days the first year. Students rank this housing extremely high, voting it the “best student housing community” for three consecutive years.

According to Greg Blais of Ambling Companies, two other factors make University Courtyard unique: 1) it was the first property in the history of privatized student housing to have an upgraded rating by Moody’s Investors Service—the rating was upgraded from Baa3 to Baa2, with a stable outlook. Only one other such project has since been upgraded; and 2) in October 2001, a tornado struck the building and all 704 students were displaced. Within four days, students began moving back in; within 12 days, every student had moved back in and University Courtyard was fully operational.

The project’s development was financed through tax-exempt bond financing, with CHF serving as the 501(c)3 owner entity and contracting with Ambling to develop, construct, finance, and manage the property. The land is owned by the university and ground leased to CHF for 40 years, 10 years beyond the term of the 30-year tax-exempt bond financing. The land lease payment to the university comes in the form of excess annual cash flows from the project. (In year one, the university received a check for more than $1 million in excess cash flows.) At the end of the ground lease, the university will receive the buildings free of debt.

On-campus additions. The institution’s second public-private student housing development was more complicated, for several reasons: It required an RFP; it involved demolition of existing structures and displacement of staff; and the tight construction area was adjacent to academic facilities, the main dining hall, and residence halls. The university needed an experienced developer that could deliver 1,000-plus beds, concrete and steel construction, and structures that fit within the existing campus architecture. It selected Capstone to develop 1,200 apartment-style beds that opened in fall 2003 with 100 percent occupancy and high student ratings. Capstone manages the leasing process and facilities management, while the university manages the resident life program with its own staff. An additional 600 beds in this development will open in fall 2004, again with Capstone as the developer.

From fall 1999 through fall 2004, the university will have added 2,500 beds at an approximate construction cost of $130 million for a total of 50,000 university and university-affiliated beds. One obvious question: Why weren’t private-sector companies building apartments nearby if there was so much demand and not enough supply? Several barriers to entry existed, including zoning restrictions and an inability to assemble nearby land held by families for generations. The university, the city of College Park, and the county worked together to establish an overlay zone along the corridor that is now allowing the private sector to develop. Other key barriers were also removed. Both Ambling and Capstone gifted the land to the university. This meant less community intervention and shorter development time frames because the university did not have to endure lengthy rezoning procedures.

Joan Millane, the university’s former assistant vice president for asset management and currently managing partner of Millane Partners, advised any institution considering a public-private partnership for student housing to secure a professional market survey—both on and off campus—by an independent firm that has credibility in the bond markets and with the rating agencies. This type of study helps determine the number of beds, the unit mix, and rental rates. It also assists in making a case to your governing board and promoting the sale of the bonds.

Key factors. Millane noted key factors in the success of the College Park partnership approaches that would hold true for other institutions considering public-private partnerships:

  • The residence life division, the administration, and the housing foundation need to work together to define their roles and priorities. In addition to including the facilities management division as part of this team, other key players to involve early in the design process are the IT voice/data, security, and parking staffs.
  • The institution must be willing and able to make decisions quickly.
  • A true partnership approach is critical and is likely to include implementing joint programs for management and residence life, coordinating design that accentuates the campus master plan, and assimilating new construction with existing structures.
  • Thoughtful planning must be given to negotiating ground leases, structuring ownership, and structuring financing. Recognize that these partnerships can minimize but do not eliminate development risk.
  • While it is possible for such arrangements to be off balance sheet, it is improbable that they would be considered off credit. (Note: New accounting regulations currently under consideration may make such transactions on balance sheet to the college or university.)

University of California, Irvine: Transforming the Campus

The largest public-private student housing project currently in development in the United States is at the University of California, Irvine (UC-Irvine). This project will result in 3,000 additional beds at a cost of $105 million. Meanwhile, the university is building another 1,000 beds on its own. Once complete, the total number of beds on campus will be 10,500. As enrollment nears 30,000, the university plans to construct another 4,000 beds.

According to Wendell Brase, vice president of administrative affairs, UC-Irvine’s goal is to achieve flagship status in the University of California System—like that enjoyed by UCLA and UC-Berkeley—by 2015. In reaching for that goal, the university has a complex set of challenges to address: significant housing demand, financing constraints, physical planning challenges, community planning concerns, and a complex business model.

At the same time that the state’s fiscal crisis is expected to endure for several more years, the 40-year-old Irvine campus is at the epicenter of a population boom, with enrollment growth averaging 1,200 students per year. Currently only 40 percent of UC-Irvine students live on campus—the lowest rate in the UC system. Because a monopoly on rental housing exists, students move outside the city for more reasonable rental rates and are then subjected to long commutes to campus. Among the objectives for this housing project are to bump up to 50 percent the number of students living on campus; transform the campus experience, in part by creating small residential communities within a large campus; and guarantee housing for specific underserved student market sectors, including single graduate students and single upper-level undergraduate students.

Innovative solutions. Changing the scale of the campus has added to the complexity of this project in terms of community planning issues. UC-Irvine is essentially colonizing an entire section of campus that was formerly green space. However, the project is being constructed around the perimeter to retain a large green space in the center. One environmental plus to this major project is that the availability of campus housing is leading to fewer commuting trips. UC-Irvine is encouraging students to buy bikes and electric scooters, providing rebates for half the cost of scooters. Likewise, students who car pool receive a 75 percent cut in their daily parking rate.

Because building a large-scale project means that mistakes are likely to be sizable, the university didn’t use a typical business model. The project was structured to build in two phases to ensure that the developer would do a good job with the first 1,500 beds and to learn how demand would play out before going back to the board of regents. One interest the university had in exploring a public-private partnership was to keep the project off credit. To do so would have meant keeping student affairs at arm’s length, in turn making it difficult to integrate the project into campus life. However, keeping the project off credit as nonrecourse debt was not necessary in terms of the university’s debt capacity and was eventually dropped as an objective.

The UC-Irvine housing project is in fact delivering a high-end product at a lower cost than the off-campus market (10 percent below market). In addition, the university will guarantee campus housing for three years for graduate students, a valuable asset in terms of reducing anxiety and attracting better graduate students.

According to Brase, one of the lessons learned is, don’t initially submit your best proposal to your city council—leave room for negotiation. The first proposal UC-Irvine put forth offered nothing above and beyond compliance with city codes, even though the university knew it wanted better quality and went on to build housing that surpassed the memorandum of understanding with the city. For instance, the project exceeded the city’s landscaping standard by 50 percent. The result: The university was praised by the city council for its responsiveness.

Author Bio Anna Marie Cirino is associate director of financial management policy at NACUBO.


For more information on nonrecourse student housing financing, visit