ROAD MAP TO SUCCESSFUL STUDENT HOUSING … MAP TO SUCCESSFUL STUDENT HOUSING PARTNERSHIPS January 10, 2012. The Essential Road Map to a Successful Housing Public ... Private investment

ROAD MAP TO SUCCESSFUL STUDENT HOUSING PARTNERSHIPS

January 10, 2012

The Essential Road Map to a Successful Housing Public/Private Partnership

An overviewoverview of how to approach a bli i li i d l

An overviewoverview of how to approach a bli i li i d lpublic‐private, solicit and evaluate

proposals and evaluate ownershippublic‐private, solicit and evaluate proposals and evaluate ownershipproposals and evaluate ownership

and funding alternativesproposals and evaluate ownership

and funding alternatives

AOA – 2012 Annual Conference


PRESENTATION OVERVIEW:• Defining public private partnerships• Defining public private partnerships

• Overview of American Campus Communities (very brief)

• The decision-making processThe decision making process

• Flexible roles of the developer / financial structures

• Overview of prevalent industry procurement processes:

• Types

• Items to include in the document

• CSU specific requirements and typical process

• Pros and cons of a P3 structure


• CSU, San Marcos case study

January 10, 2012


Wiki diWikipedia says:

“government (public) service or which is fundedgovernment (public) service or …which is funded and operated through a partnership of government (public) and one or more private sector companies.”(p ) p p


THE AMERICAN CAMPUS MISSION

Founded in 1993 with a sole focus on student housing

Grassroots understanding:Grassroots understanding:

13 members of our top staff, including our CEO, began as resident assistants

OUR MISSION is to be the premier provider of quality p p q y

student housing communities and services through a unique

understanding of and an unrelenting commitment to

students parents educational institutions and investors students, parents, educational institutions and investors.

Our people are our strength, achieving success through a

dedication to excellence and integrity.

AMERICAN CAMPUS COMMUNITIES :: 7

UNPARALLELED TRACK RECORD

OWNED / MANAGED

140 communities

92 000 beds nationally92,000 beds nationally

OPERATIONS

Industry leading

Occupancy

Same store Fall average 97.8%

Same store NOI

7 2% quarter on quarter 7.2% quarter on quarter

5.3% annually

Avg. annual rental rate growth 2.5%

DEVELOPMENT

$3 billon in development

75 projects nationally


57 on-campus

In excess of 50,000 beds

NOTABLE ACC CALIFORNIA EXPERIENCE (AS OF 1/1/12)

OWNED/DEVELOPED/ACQUIRED (OFF-CAMPUS)

CSU-Fresno

CSU-San Bernardino (sold to campus)

CSU-Sacramento

San Diego State UniversitySan Diego State University

DEVELOPED/MANAGED ON-CAMPUS

University of California, Irvine

University of Southern California (Health Sciences)

BY THE NUMBERS

Developed approximately $400 million in student housing

Manage approximately 6 000 beds of student housing


Manage approximately 6,000 beds of student housing

BEST IN CLASS COMPANY ::


BEST IN CLASS COMPANY ::



The Decision Making ProcessThe Decision Making Process



PURSUING AN OUTSIDE PARTNERPARTNERReasons for pursing an outside partner and why a move from the campus model would be undertaken:

Lower development cost

Developer expertise

Operational expertise

Preservation of debt capacity

Limited campus resources

AOA – 2012 Annual Conference AMERICAN CAMPUS COMMUNITIES :: 13


ESTABLISHING PRIORITIESPRIORITIESUniversity stakeholders need to establish priorities of what is to be achieved and OPERATIONS STUDENT means for evaluating partnership. From perspective of:

Operations

DEVELOPMENT

Operations

Student Development

Facilities FACILITIES FINANCEFacilities

Finance

Other

FINANCE


Other


OBSTACLES TO WINNING BUY‐INI i i li d i di id l d f id f h• Institutionalized individuals and groups afraid of change

• Perceived loss of control

• Perceived loss of revenue with students moving to newer• Perceived loss of revenue with students moving to newer facilities

• Lack of knowledge of how contract will control relationship between the campus and third partybetween the campus and third party

• Number of people involved – many stakeholder groups

• Not having a lead person with the combination of knowledgeNot having a lead person with the combination of knowledge of development, campus financial situation, construction oversight and control experience, and ability to obtain top administrative support.



Desired level of University control impacts developer role and partnership structure

Project – site plan, architecture, construction specifications, parking, etc.

Management and Operations – facilities maintenance, marketing, leasing, etc.

Student Development – residence life programming,Student Development residence life programming, community assistants, etc.



Developer Roles &Developer Roles &Developer Roles &Financing StructureDeveloper Roles &Financing Structure



“WE DO IT ALL”

ACC has structured more than $5 billion of student housing transactionsACC has structured more than $5 billion of student housing transactions utilizing various structures and financing alternatives including:

• Developer Equity

• Tax‐Exempt Project Based Bonds

• Taxable Project Based Debt

• General Obligation Bonds

Simply put, we provide institutions with the most financial flexibility.



Flexible Roles of the Developer

1. Pre‐development services prior to the final determination of the ownership structure

2. Developer and construction manager under Princeton Universityp guniversity owned/financed structure

3. Third‐party developer and manager under a tax‐exempt project‐based transaction structureexempt, project based transaction structure

4. Private investment & ownership (equity structure)

University of California, Irvine

ACC is comfortable under any feasible structure and willdetermine the most optimal solution in partnership withthe University.


the University.

Arizona State University


TRANSACTION STRUCTURE & FINANCING ALTERNATIVES

General Obligation Bonds

University ownership & risk

Lowest cost of capital

Tax‐Exempt, Project‐Based Bonds

Use of a 501(c)3 foundation

Cash flow to UniversityLowest cost of capital

Direct debt of University

Developer is service provider

Cash flow to University

Debt/credit impacts

Taxable Project‐Based Debt

D l k i i k

Developer Equity

l h kDeveloper takes construction risk

University and developer share cash flow

Long‐term management agreement

Developer ownership & risk

Ground rent to University/Foundation

Property tax implications


Ownership/control vs. risk assumption


PREDEVELOPMENT SERVICES Services at the Discretion of the University

Predevelopment

Development

Construction management

Operations & managementOperations & management

University BenefitsExpert knowledge in the earliest phases of project

Private sector experience and expertise without having P i U i ito commit to privatization as part of selection process

Permits side‐by‐side comparison of various ownership alternatives for University to make an informed decision

Provides University adequate time to prioritize control versus credit capacity

Princeton University

issues

DeveloperPre‐development fee and reimbursement of third‐party expenses

Opportunity for ownership or development and construction management feeWest Virginia University


Opportunity for ownership or development and construction management fee income


TAX‐EXEMPT, PROJECT‐BASED STRUCTUREDeveloper Performs the Following Servicesp g

Transaction structuring and secures project‐based financing

Predevelopment

Development

Construction management• University/developer/contractor coordination

Southern Oregon University

Operations & management (at University’s option)

Transaction

Not for profit ownership with restricted flow Northern Illinois UniversityNot‐for‐profit ownership with restricted flow of funds to university

Most difficult and costly to structure with highest transaction execution risk

AOA – 2012 Annual Conference AMERICAN CAMPUS COMMUNITIES :: 22University of California, Irvine


TAX‐EXEMPT, PROJECT‐BASED STRUCTURE

text

University

text



TAX‐EXEMPT, PROJECT‐BASED STRUCTURE

UniversityyReceives all net project cash flows via flow of funds

Controls all aspects of operations via management committee

M i f bl dit t t tMay receive favorable credit treatment:

• High leverage, minimal debt service coverage and fact that no party other than the University has a financial interest makes the project most susceptible to scrutiny of rating agencies

B fi f f i i h d i d li d i llBenefits from core competency of private sector in the design, delivery and potentially management of the asset

After lease term (25‐30 years) assets revert to university

DeveloperEarns a development and construction management fee

• Assumes delivery and budget risk (up to development fee)


y g ( p p )

Controls development contingency and shares control of development decisions


PRIVATE INVESTMENT & OWNERSHIP

University leases land to developer / owner (50‐75 years)

Private owner assumes all:Private owner assumes all:

• Financial responsibility for delivery• Operations, maintenance, capital

University of New Mexico

improvements and long‐term ownership

Lowest project leverage and transaction cost:

L t l (LTV) t i t l 75 tLoan‐to‐value (LTV) at approximately 75 percent

Modest costs of insurance

Arizona State University


Portland State University


PRIVATE INVESTMENT & OWNERSHIPUniversity Benefits

Receives negotiated ground rent annually

Input into operations via the management committee

University controls decisions regarding operational policies governing student residents

Student rental rates are market‐based and controlled by owner

Hybrid management options at the mutual agreement of the University and owner

Most credit‐friendly structure; preserves credit capacity for core academic and research projectsMost credit friendly structure; preserves credit capacity for core academic and research projects

After lease term (50‐75 years) assets revert to university

University Approvals:University Approvals:

Exterior building elevations

Site plan

Landscape plan and exterior lighting plans


Landscape plan and exterior lighting plans

Emergency call‐box locations


University



KEY CHARACTERISTICS FOR AN EQUITY‐BASED PARTNERSHIP

Developer Funds 100 Percent of Total Development Cost:

Combination of company equity and debt

Equity is typically 25‐50 percent of total project cost

Rating Agencies Positively View the Transactions g g y

from a Credit Perspective Because of Developer’s:

Direct ownership of the project

Large equity position in the project (will agree to maximum loan to value)Large equity position in the project (will agree to maximum loan‐to‐value)

Improved operational and financial metrics through equity investment and improved

debt coverage ratios


Private owner’s financial responsibility for operations and maintenance of the facility



h l h lThe Developer Does Not Charge Development, Construction Management or

Transactional Fees on Projects:

Lowers overall project costs

Aligns ACC with the University

Financial return is not derived from fees, but instead is:

• Earned through long term cash flows and benefits of ownership• Earned through long‐term cash flows and benefits of ownership

• Contingent upon a successful open‐market project

University Will NOT Be Required To Provide:

Financing for the project

Occupancy guarantees or master lease

Any operational or financial support


Any operational or financial support



Developer is Fully Vested in the Project’s Long Term Success

Sole financial, development and operating partner

Developer’s equity is fully at‐riskDeveloper s equity is fully at risk

Able to fund significant pre‐development expenses, creating efficiencies that can expedite the project timeline and delivery

Developers with Third‐Party or Joint‐Venture Equity May Not Be The Final Decision‐Maker:

Transaction structureTransaction structure

Financial decisions throughout the development process

Operational matters upon project opening and stabilization



UNIVERSITY OWNERSHIPALL SERVICES AT THE DISCRETION OF THE UNIVERSITY

Pre‐development

Development

Construction management

On‐going operations & management

UNIVERSITY BENEFITS

Core competency of private sector in the design, delivery and management

Control of all design and development decisions

Receives all net project cash flows (unrestricted)

Self‐operates or engages third‐party for management services

Has direct impact to debt/credit capacity


LIMITED OR NO RISK FOR THE DEVELOPER


CASE STUDIES (EMAIL VERSION)



Shaping theShaping theShaping the Procurement ProcessShaping the Procurement Process



Prevalent Forms of Procurement

Request for Information (RFI)

Request for Qualifications (RFQ)

Request for Proposals (RFP)

Pick a “Partner”… Not a Proposal:

Fully understand and prioritize the University's goals and objectives

Analyze financing and ownership alternatives gaining a clear understanding of the specific pros and cons of each

Involve the University in the program development and product design at the institution’s desired level


Customize the management plan


Assuring a Successful ProjectAssuring a Successful Project



STRATEGIES FOR SUCCESSItems to be determined before the procurementItems to be determined before the procurement process:

Forming the “right” campus review team

Assessment of the existing student housing

Operational models wiling to be considered

Design standards and Construction specifications

Contract relationships versus control processes



CSU SPECIFIC REQUIREMENTSDemand study (before and after)

Chancellors office approval

State/City review process

University architect approval

CSU TYPICAL PROCESSShortlist (typically 3‐5 vendors)

On‐campus presentations by developer(s)

CSU TYPICAL PROCESS

Determining which team presents the “best value”


Enter into negotiations


Id tifi ti f M j P j t C t

Key Items to Consider in Contract Negotiations

• Identification of Major Project Components

• Pre‐development Funding and Reimbursement Commitments

• Exclusivity ProvisionsExclusivity Provisions

• Cancellation Provisions

• Ground Lease Provisions – Management Structure

– Ground Rent

Lease Term– Lease Term



• Developer Outlines Preliminary Materials:

Key Items to Consider in Contract Negotiations

Developer Outlines Preliminary Materials:

– Conceptual Designs and Drawings

– Preliminary Schedule for Development Process

– Preliminary Budget

– Reimbursable Schedule

– Preliminary Residence Life Program

U i it A /R j t P li i M t i l• University Approve/Reject Preliminary Materials




Defining the Ground Lease


1. Construction and Design

Major Ground Lease Categories

1. Construction and Design

2. Management Structure

3 Ground Rent3. Ground Rent

4. Financial Structure



• Construction and Design


Construction and Design– Scope Project

– Project Specificationsj p

– Target Completion Dates

– Penalties/Remedies for Non‐Performance




• Management Structure– Who Can Live in the Facility

– Who Can the Facility be Marketed ToWho Can the Facility be Marketed To

– Who Manages the:• Leasing, Marketing, and Billing

• Residential Life Program• Residential Life Program

• Maintenance




• Ground Rent or Cash Flow– Minimum Rent

Annual Rent– Annual Rent

– Capital Expenditures versus Ongoing Expenses




• Lease Term

• Funding MechanismD bt– Debt

– Equity

• Sale Provisions– Buyer Qualifications

– University Option

• Default Remedies• Default Remedies



STAYING ON SCHEDULEBest Strategies for Keeping the Project on Schedule:

C St k h ldCampus Stakeholders

Administration and Chancellors Office

D lDeveloper

Clear distinction between stakeholders and decision makers




Pros and Cons of a P3 Structure


CONSPROS

• Cost of Capital

• Complexity

• Potential Balance Sheet and Credit Capacity Complexity

• Reduced University Control

p yPreservation

• Project Management Control

• Long‐Term R l ti hi

Project Management Expertise

• Streamlined Relationship

• Who’s in Charge?

• Streamlined Construction Process



University VillageGENERAL

C.O. Approval – May 2001

Opened - Fall 2003

1st On-Campus for Universityp y

475 beds

$27.5 million

AMENITIES

Gated community

Community Center

Social Lounge

Swimming Pool


g

Sand Volleyball Court

QUESTIONS & DISCUSSIONQ

Documents

ROAD MAP TO SUCCESSFUL STUDENT HOUSING … MAP TO SUCCESSFUL STUDENT HOUSING PARTNERSHIPS January 10, 2012. The Essential Road Map to a Successful Housing Public ... Private investment