If structured correctly, a social infrastructure P3 is characterized by continuous collaboration and interest alignment between the university and private developer over the term of the partnership. The relationship should be memorialized in the ground lease and partnership legal documents, ensuring the university retains certain consent and veto rights over major decisions that impact housing availability, rent increases above agreed-to escalation, and expenditures from the project reinvestment account, while transferring delivery, lease-up, and stabilization risks to the private partner. Similarly, to raise private sector financing that is non-recourse to the university, the private developer relies on the university partner to provide non-monetary support, like resident life services, to assist with operational success of the on-campus housing.
Successful P3s have been established between the Department of Defense (DoD) and private developers to improve existing and create new military family housing and lodging facilities. These partnerships, authorized by the 1996 Military Housing Privatization Initiative (MHPI), have demonstrated how social infrastructure P3s can achieve outstanding results for a public partner—or as applied, a university partner. They also give the DoD control over certain functions that it deems critical, and provide opportunities for the DoD to impact major decisions within the partnership, ensuring optimal developer and operational performance and adherence to the shared mission.
Lendlease’s extensive P3 experience in the US is rooted in such MHPI social infrastructure projects, and our recent entry into the student housing space gives us a fresh lens to better understand the needs of the university and its administrators’ apprehensions related to P3 structuring. In this article we explore what Lendlease believes are the five most important facts about university-focused P3 social infrastructure projects:
FACT 1: PRIVATE DEVELOPERS ARE LONG-TERM GUESTS ON UNIVERSITY CAMPUSES.
A relationship that allows for one entity to make every decision while the other entity is powerless to influence future outcomes is not a partnership. Private developers should view themselves as long-term, on-campus guests; student and university satisfaction is imperative to a P3 housing project’s long-term success in the existing campus environment. An effective partnership creates aligned goals beyond financial returns, and establishing a joint decision-making process between the university and private development partner that is transparent, collaborative, and based upon each partner’s relative expertise and exposure to risk is the most crucial undertaking in forming a P3. A well-structured partnership ensures the university retains its influence over major decisions related to housing and resident life, while the private entity oversees day-to-day development, asset management and operations.
FACT 2: THE UNIVERSITY PARTNER ULTIMATELY DECIDES HOW INVOLVED THE PRIVATE PARTNER IS WITH RESIDENT LIFE FUNCTIONS.
A private partner CAN take on aspects of resident life management, but it is ultimately up to the university to decide what the private partner’s role in that function will be, if any. Well-defined partner roles ensure that universities retain clear control over certain functions, which may include housing assignments, rent collection, and resident life services. To create a seamless housing experience for students, continued university participation in the resident life function is encouraged. The established project company can pay the university for services it performs.
FACT 3: EFFECTIVE PRIVATE DEVELOPERS PROMOTE PARTNERSHIP AND COLLABORATION.
In an effective and well-structured partnership, both partners work to understand each other’s interests and concerns to align project goals and make decisions. University partner participation is crucial for successful collaborative design, development phasing, regular project updates and other activities that are included in the creation of a successful project. The terms for ongoing university roles, major decision rights and responsibilities, as well as what is expected of the developer, are expressly prescribed and protected in the legal documents regardless of the mechanism of asset conveyance (i.e., ground lease, concession agreement, and/or partnership operating agreement).
FACT 4: EXPERIENCED PRIVATE DEVELOPERS RECOGNIZE AND SUPPORT THE NEED FOR A SEAMLESS STUDENT EXPERIENCE.
Upon completion of the development of new or revived student housing facilities, the private partner’s role as developer often transitions into an asset management role that oversees the long-term maintenance and capital upkeep of the new housing and potentially the replacement of older housing conveyed to the private partner to manage. In this capacity, the private partner continually aligns its mission with that of the university, assimilating to on-campus culture and supporting the university’s long-term goals.
As long-term guests on campus, the private partner’s presence is a courtesy extended by the university. The university is best suited to oversee resident communication and act as the student-facing entity, while the asset and property managers operate and maintain the housing to enhance the resident experience. The partnership decides together how to seamlessly present resident life and property management personnel to students and make the different communication channels clear and effective. Every experience a student has on campus reflects upon the university, and those memories and connections should be with the university, not the P3 partner. The overall goal of the P3 is to provide students with positive live-learn experiences, leading to a positive overall university experience. Happy students become happy alumni who support their alma mater.
FACT 5: EXPERIENCED P3 DEVELOPERS STRIVE TO ALLEVIATE STRESS BY PROVIDING A WELL-ROUNDED, CUSTOMIZED SOLUTION.
Many universities face tremendous deferred maintenance in their student housing facilities. New student housing is ideal for addressing excess demand at growing universities, but to completely revitalize the entire on-campus housing program, universities can choose to do a P3 with a developer capable and interested in renovating existing housing and providing a comprehensive solution.
Including existing housing in the P3 can also improve the financial outlook of the project. The conveyance of existing on-campus housing for renovation or replacement can increase occupancy and increase the amount of debt capital on better financing terms to both reposition older housing and build new facilities. All student housing can be maintained and upgraded or replaced over the life of the partnership when a sizable portion of the project’s available cashflow is invested into a restricted reinvestment account. Renovating and upgrading existing facilities and creating a comprehensive and sustainable housing program helps protect the long-term financial health of the university partner.
P3s can provide much-needed improvements to aging campus infrastructures and transferring the risk to a qualified developer and long-term partner allows university officials to re-focus resources on the success of the institutions’ core missions. Administrators should seek developers who recognize that each P3 is different, share the same values and are invested in the university’s long-term economic wellbeing. Lendlease’s extensive and diverse P3 experience gives us the capability to provide best-in-class results for our partners’ long-term success and will support university recruitment and retention for generations to come.