MAXIMIZE THE VALUE OF THE REAL ESTATE ASSETS OF HIGHER EDUCATION INSTITUTIONS

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MAXIMIZE THE VALUE OF THE REAL ESTATE ASSETS OF
HIGHER EDUCATION INSTITUTIONS

• Carole Wedge, President
• Shepley Bulfinch Richardson Abbott
• Thomas Kearns, Principal
• Shepley Bulfinch Richardson Abbott
• Wallace Mlyniec, Former Associate Dean
• Georgetown University Law School
• Jeff Turner, Senior Vice President
• Brailsford Dunlavey
• John Augustine, Managing Director
• Lehman Brothers

Georgetown Law
Shepley Bulfinch
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Carole
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• Valuing Assets
• The Campus
• Fresh Students Every Year
• Understanding Options
• Real Estate
• Funding
• New Models

• Linking Strategy
• Operating and Capital Budgets
• Payback / Lifecycle
• Evaluating Delay
• Escalation
• Recruitment
• Opportunities Missed

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CAPITAL PROJECTS IN CONTEXT
Initiatives that may impact space
needscapital planning and dollars.

• Strategic Plan
• Curriculum Plan
• Growth
• Technology
• Innovation
• Administration Change
• Sustainability Commitments

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QUESTIONS INSTITUTIONS ARE ASKING

• How can we accomplish this? (Show me the )
• How do we garner support? (Show me the )
• How will this make us competitive? (Why is this
  important?)
• How will this improve our recruitment? (Why
  is this important?)
• Can we afford this? (What are the
  operating costs?)

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TRENDS IN HIGHER EDUCATION

• Institution as Economic Engine
• Transformational Student Experience
• Changes in Teaching and Learning
• Changes in Living Environments

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Wally
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GEORGETOWN LAW SCHOOL FOUNDED IN 1875
2006 GULC
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DOWNTOWN D.C.
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GEORGETOWN UNIVERSITY LAW CENTER CAMPUS
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BERNARD McDONOUGH HALL EDWARD DURRELL STONE,
ARCHITECT
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EDWARD BENNETT WILLIAMS LIBRARYHARTMAN COX,
ARCHITECT
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BERNARD AND SARAH GEWIRZ BUILDINGHARTMAN COX,
ARCHITECT
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BERNARD MCDONOUGH HALL EAST WINGHARTMAN COX,
ARCHITECT
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GEORGETOWN UNIVERSITY LAW CENTER CAMPUS
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ERIC HOTUNG INTERNATIONAL LAW BUILDINGSHEPLEY
BULFINCH, ARCHITECT
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GEORGETOWN SPORT AND FITNESS CENTER SHEPLEY
BULFINCH, ARCHITECT
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THE FUTURE
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Tom
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INSTITUTION AS ECONOMIC ENGINE
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INSTITUTION AS ECONOMIC ENGINE
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INSTITUTION AS ECONOMIC ENGINE
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INSTITUTION AS ECONOMIC ENGINE
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INSTITUTION AS ECONOMIC ENGINE
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INSTITUTION AS ECONOMIC ENGINE
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INSTITUTION AS ECONOMIC ENGINE
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INSTITUTION AS ECONOMIC ENGINE
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CHANGING LEARNING STYLES
Problem Traditional classrooms have key
restrictions of limited resource availability and
physical isolation.
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CHANGING LEARNING STYLES
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CHANGING LEARNING STYLES
Class with Remote Guest Speaker Imported into
the classroom via video with the session
including guest captured in streaming format and
shared with faculty and students doing
interdisciplinary work in related fields.
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CHANGING LEARNING STYLES
Goal - Establish a portfolio of flexible and
technologically-enhanced formal and informal
learning spaces in support of socially-enabled
inquiry and discovery.
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CHANGING LEARNING STYLES
Media Creation iPods, iTunes, iPhoto, eBooks,
iLectures, videophones, BluRay disks for
stereoscopic video, Lectopia, Symposia,
Blackboard.
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CHANGING LEARNING STYLES
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CASE STUDY XAVIER UNIVERSITY
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CASE STUDY BUCKNELL UNIVERSITY
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CASE STUDY BUCKNELL UNIVERSITY
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Jeff
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TRENDS TOWARDS ALTERNATIVE FINANCING
PARTNERSHIPS

• Limited State Financial Support
• Speed of Delivery Execution
• Increasing Construction Costs
• Allow for greatest expertise
• Community Partnerships

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TRENDS TOWARDS ALTERNATIVE FINANCING
PARTNERSHIPS
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TRENDS TOWARDS ALTERNATIVE FINANCING
PARTNERSHIPS

• Less defined campus edges
• Off-campus university bookstores make for strong
  anchors
• College towns potentially incubate new business
• Student population accounts for 20 of the
  market
• Successful college towns consists of high-end
  national (30) as well as local merchants (70)
• Source Ayers Saint Gross

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MARSHALL UNIVERSITY WELLNESS CENTER
STUDENT HOUSING

• Initial RFP for design services
• Revised RFP Issued for full development services
  including
• Health/Wellness Center
• Student Housing
• Campus/state limited debt capacity
• Developer led process
• 120,000 gsf Wellness Center
• 780 beds of housing

Courtesy of Capstone, D/C, HC
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GEORGE MASON UNIVERSITY FREEDOM CENTER

• Limited Recreational Facilities in Prince
  William County
• Tri-partite Agreement with George Mason U, city
  of Manassas, and Prince William County
• Facility covers operating costs plus a portion
  of debt service
• Remaining debt service split based on usage
• Over 600k users a year
• Over 5,000 members, 7,000 memberships
• Discussing an expansion
• New Performing Arts Center looking at similar
  operating model

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BUCKNELL UNIVERSITY - LEWISBURG, PA

• CURRENT SITUATION
• Considerable loss of regional manufacturing jobs
• Suburban development causing decline of boroughs
  as commercial hubs
• Changing demographics, graying population
• Fragile downtown Lewisburg with independent
  retail
• Rising threats to a Heartland Region core
  community

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TOWN GOWN DYNAMICS

• Increasing competition for high school graduates
• Increasingly sophisticated student and
  faculty/staff quality of life expectations
• Universities expected to look beyond campus

• Courting of the creative class
• Diversity of sports, cultural, and learning
  activities
• Building a creative ecosystem to attract 21st
  century jobs and workers

First Initiative Neighborhood Improvement
Projects
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CURRENT NEIGHBORHOOD PROJECTS

• Main Street Elm Street Grants
• Streetscape and Façade Improvements (1)
• 7th Street Reconstruction (2)

Market Street
Second Initiative Magnifying Neighborhood
Improvements
Bucknell
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UNIVERSITY VILLAGE OBJECTIVES

• Strengthen Recruitment
• Enhance the Neighborhood
• Create Market Street Link
• Define a University Gateway
• Improve Community Relations
• Clarify Faculty / Student Housing Options
• Complement existing retail on Market Street

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LEWISBURG NEIGHBORHOOD STUDY AREA
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MARKET ANALYSIS CONTEXT

• Study Area
• 82 Owners
• 181 Parcels
• 36 Acres

• Primary Area
• 53 Owners
• 126 Parcels
• 29 Acres

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PROCESS
Community Market
Campus Market
Demand and Supply Analysis
Market Feasibility
Preliminary Program
Pro Forma, Project Uses
Financial Feasibility
Project Concept
Financing Mechanism, Development Structure
Project Sources, Project Participants
Implementation Strategy
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OUTCOMES
Neighborhood Real Estate Product Drivers
Community Market
Campus Market
For-Sale Housing Rental Housing Retail Conference
Space Hotel Office Space
Demand Neutral
High Demand
Demand Neutral
High Demand
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CASE STUDY ? ROCHESTER INSTITUTE OF TECHNOLOGY

• Park Point at RIT
• Project Drivers
• Create a new front door to campus.
• Increase the sense of community by developing a
  college town on campus.
• Generate revenue for the campus.
• Project Statistics
• 85 Million Mixed Use Development
• 67 Acres
• 67,000 GLA of Retail (100 leased)
• 300 Student Apartments (920 Beds)
• (Over 75 leased)
• Ownership / Management Structure
• Ground Lease with developer (Wilmorite)
• United Realty Management Company manages the
  housing.

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CASE STUDY ? ROCHESTER INSTITUTE OF TECHNOLOGY

• Park Point at RIT
• Retail Concepts
• 40k GSF RIT Book Store (BN)
• Clothing
• Salon/Spa
• Convenience
• Cellular
• Fitness Center
• Restaurant Concepts
• Sports Bar
• Pizza
• Coffee
• Asian / Sushi
• Lessons Learned
• Wetlands Issue Created Significant Delays
• College wanted more retail/apparel but no demand

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John
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PRIVATIZATION PROCESS
1. Conceptualize Project.
12. Develop Public/PrivateFinancing Structure.
8. Complete FinancialAnalysis.
2. Establish Project Objectives.
13. Choose Developer.
9. Prepare Development Phasing Plan.
3. Create the Project Vision.
14. Negotiate Development Agreement.
10. Develop Alternative Public/Private Finance
Plans.
4. Complete Development/ Market Demand Analysis.
5. Develop Land, Building and
InfrastructureProgram.
15. Obtain Equity and Debt.
11. Develop AlternativeOwnership, Investment,
Development and Operation Scenarios.
6. Complete Design.
7. Prepare Total Development Analysis.

• Start Construction.

Source Stainback and Associates
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PRIVITAZATION FINANCING OPTIONS FOR NEW PROJECTS

• There is a broad continuum of financing options

Tax-exempt financing can be used for a
significant portion of most structures.
Privately Owned and Financed with Equity
Contributions (Rate of Return 20 -30)
Publicly Owned and Financed with Tax-Exempt
Bonds (Interest Rate 5.5 - 6)
Between these two extremes, a variety of
structures utilizing tax-exempt debt, taxable
debt and equity funding are possible.
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THERE ARE TWO TYPES OF NON-RECOURSE DEBT
ON-CREDIT AND OFF-CREDIT

• On-Credit Non-Recourse Debt
• Secured only by a limited, particular stream of
  revenues or assets, usually those of the financed
  project, rather than by a general revenue pledge.

• Off-Credit True Non-Recourse Debt
• In addition to the limited security described
  above, there is a transfer of risk (legal and
  perceived or real vested interest) away from the
  University or Affiliated Organization to some
  other creditworthy entity.

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ADVANTAGES AND DISADVANTAGES THE GOOD NEWS
From the Perspective of the Public or Non-Profit
Partner

• Reduces ownership and development risks.
• Reduces primary public or non-profit partner
  capital investment.
• Monetizes excess and underutilized assets.
• May utilize private partner expertise and
  creativity.
• Implementation schedule may be accelerated.

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ADVANTAGES AND DISADVANTAGES THE GOOD NEWS
From the Perspective of the Private or For-Profit
Partner

• Often public/private developments are high
  profile projects.
• Jointly control a college or university-owned
  real estate asset available for the first time.
• If needed, primary and secondary college or
  university partner provides capital and/or
  non-capital investments.
• Reduces development cost and enhances cash flow.
• May utilize private partner expertise and
  creativity.
• Approval process may be accelerated.

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ADVANTAGES AND DISADVANTAGES THE BAD NEWS
From the Perspective of the Public or Non-Profit
Partner

• Reduces control over design, delivery, and
  operation.
• Reliance on a virtually unknown private entity.
• Deal structure may be perceived as not a fair and
  reasonable sharing of costs, risks,
  responsibilities and economic return.
• Private partner has the right to sell project to
  an unknown third party.
• Economic return is primarily contingent on
  performance of private partner.

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ADVANTAGES AND DISADVANTAGES THE BAD NEWS
From the Perspective of the Private or For-Profit
Partner

• Substantial cost in time and capital risk.
• Often public or non-profit partner is not
  prepared to structure, negotiate and implement.
• Development site is either not under control, has
  environmental problems and/or is not entitled.
• Public or non-profit partners expectations are
  not in line with the capital markets.
• Public or non-profit partner is subject to
  political change.

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PARTNERSHIPS CAN BE CUSTOMIZED TO MEET THE
OBJECTIVES OF PARTNERS
Variables to Consider and to Evaluate

• Level of participation in structuring,
  implementing, and managing the project.
• Financing sources.
• Financing techniques.
• Financing, design, construction, and operational
  responsibilities.
• Finance structure.
• Accounting Factors
• FASB vs. GASB

• Distribution of cash flow among the public and
  private entities.
• Ownership position.
• Design, construction, and operational risks.
• Level of control.
• Implementation schedule.
• Legal interrelationships among the project
  entities.