What Does It Take To Make A Public-Private Partnership Work?
At Bisnow's Annual Student Housing 2016, the final panel of the day broke down the nature and challenges of public-private partnerships, or P3s, in getting student housing built at universities.
There are two main reasons for a college or university to enter into a P3: to seek assistance in financing and/or to seek guidance in the development process. Todd Stern of U3 Advisors explained the latter: “Some colleges will say, ‘We want to do a P3 because a private firm has more knowledge in the real estate sphere, and they can act more quickly in the market.’”
P3s are becoming more common—a notable example of this is the Schuylkill Yards project, of which Drexel is a partner—and that’s no accident, Provident Resources Group’s Steve Hicks says. “You also have to consider the herd mentality—when colleges see other schools doing P3s, they wonder if they can do it too.”
Of course, to desire something and to be able to pull it off are two different things. Some universities may not know quite what they’re getting into.
“If it’s a university’s first P3 venture, it’s the developer’s job to educate the client about the deal up front,” says Roger Demareski, who oversees finance for Lafayette College. “It can feel like you’re treating them like they don’t know anything, but it’s worth it to have a discussion that puts everyone on the same page regarding a project’s goals.”
That education can be a long process—one major university Steve worked with took four years to put together the development team it wanted—but it’s crucial, especially with the wave of mixed-use developments for student housing that has been going on.
Retail space on the ground floor of student housing buildings has become more common, but universities and colleges are often ill-equipped to develop or manage commercial space. It’s a common reason to engage in a P3, but still requires engagement from the university.
It can be tempting to simply turn over all decisions to the developer, but Julie Skolnicki of EdR cautions, “The university needs to understand to which project their revenue is going.”
Student housing is at least as much about the financing as all other forms of commercial real estate, and making a project cost effective is not just about profit margin. For colleges, keeping the cost of living down is an important way to improve access to education for low-income students.
“The industry needs to be reminded that the consumer is so concerned with return on investment, we can’t continue to grow the cost of attending a university the rate it’s been going,” Roger warns.
Many developers and financiers can also be new to P3s, and for those, the panelists had some advice: listen and communicate with the university, to make sure you’re meeting its needs and developing a project that has the potential to remain successful long term. It’s the difference between P3s and most developments—the commitments colleges are forced to make with their buildings.
For private companies assisting colleges, how to respect that commitment depends on what service you’re providing.
“The nonprofit owner or asset manager is around for the life of the project, but in some cases, the developer won’t be,” Steve says.
A building will be occupied for far more time than it takes to build it, which is why the life of the project requires thought from the beginning. Todd says that often falls by the wayside. “You spend years working on all the agreements, but it’s uncommon to see a college do a post-occupancy assessment. You have to check yourself.”
Roger agrees, adding that respective parties’ involvement over the life of a project “needs to be discussed up front,” and for all the nuances involved with financing, land use and weighing amenities with occupancy, one thing stands out above all: communication. As with any successful partnership, the more communicative each side is, the better a project can serve everyone’s needs.
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