In early September, I attended the P3 Higher Education Summit for the second year in a row. Once again, I was impressed with the quality of the information and the opportunity to meet people focused on helping colleges and universities find new and creative ways to build facilities designed to meet student needs. Haley & Aldrich is working on P3 projects on both coasts and is focused on helping both the developer and the campus find efficient solutions to geotechnical and environmental issues impacting development. After the conference last year, I shared P3 basics. This year I’ve taken it a step further – here’s what I learned:
Fundamental P3 drivers still exist
Public universities are turning to P3s due to reduced public funding, which has never rebounded to pre-recession levels. Private universities are turning to P3s as they suffer from reduced funding due to tuition discounting, escalating costs, and reduced budgets. One panelist from a small private university said, “We are at the beginning of exploring whether this is something we want to do.” Even though the facilities arms race is waning as students and their parents become more pragmatic, there are fundamental needs for new facilities. And P3 developments offer an escape hatch from deferred maintenance backlogs when the developer is on the hook for keeping up the facility.
Even more owners pondering P3s
Throughout the conference, I noticed large cohorts from colleges and universities that are starting to examine whether P3 is right for their campus. While the facilities arms race appears to be waning, demographic trends may be driving interest in P3s as a way to keep up facilities and attract or accommodate students. According to Brailsford & Dunlavey’s 2018 State of the P3 Higher Education Industry report released at the conference, the East and Midwest are experiencing declining enrollment which is causing increased competition. On the other hand, the West and Southwest are seeing increased enrollment, driving a need for more facilities, especially student housing, which is the most common P3.
Campuses can build P3 into their master planning
While at times P3 can be a salvation for challenges such as a funding shortfall or similar obstacles, it’s best to be more strategic and incorporate the potential for private development into the campus master plan. According to Brodie Bain, Campus Planning Director at Perkins + Will, “Campus planning is where you can either enable or disable a P3 project.” First, you need to identify zones that are best for P3 development. And you can’t forget the town-gown relationship – coordinate with the city to integrate campus plans with community plans. Finally, engage the community itself. The stakeholders include students, faculty, campus staff, local businesses, local residents, and many others.
P3 developers are getting more strategic
As colleges and universities get up to speed on whether P3s are right for their campus, P3 developers are also learning. In particular, developers are getting more strategic rather than chasing every opportunity. I spoke with several developers who told me they opted out of an opportunity that wasn’t in alignment with their business goals, or decided they weren’t a good match for that particular institution. Both sides are recognizing that entering into a P3 deal is a long-term arrangement, and it needs to be right for both partners. Universities need to be cognizant of this as they negotiate with development partners. According to Jason Taylor, Senior Vice President of University Partnerships for Greystar, “We evaluate P3 opportunities for how they can advance the university’s mission and goals. Alignment with strategic and master plans is the key indicator of a successful and impactful partnership.”
And for those of us who support the P3 development teams – how can we help best?
When a P3 deal happens, typically a college or university signs on with a P3 developer who has a construction manager and sometimes an architect on board. But, what about the rest of the design team? When are others selected and what does it take to make the team?
While some design services may be “proforma dust,” there are ways to help the prospective teams understand certain development risks. For campuses looking at multiple sites for a P3 development, there may be key issues related to zoning, utility infrastructure, abutter impacts, soil conditions impacting foundation costs, and environmental site history that could impact land value, entitlement processes, and construction costs. My colleague Catherine Ellis, a geotechnical engineer in the Bay Area who joined me at the conference, told me, “For the next student housing P3 development at my alma mater, UC Berkeley, they are looking at nine sites. One is on a known major fault line and one has the potential for contamination concerns. That will impact the development significantly.”
It also helps to know what the developer needs from the design and construction team. According to Jamie Wilhelm, Executive Vice President for Public-Private Transactions at American Campus Communities, what really matters is finding the right team for the right project. They select their partners based on similar experience, so if it’s a residential tower or a five-story podium structure, that experience matters. And how much campus experience you have matters, too.
Based on everything I heard at the conference and the interest I see from our clients on both the East and West Coasts, P3s are here to stay. They help campuses meet facilities needs in the face of funding challenges and deferred maintenance backlogs. When incorporated into master planning, they can tie to the campus’s vision and mission.
To talk about P3 trends or how Haley & Aldrich can support your P3 development, contact Liz Fennessy.
General Manager, East Business Unit