MAXIMIZE THE VALUE OF THE REAL ESTATE ASSETS OF HIGHER EDUCATION INSTITUTIONS BRAILSFORD & DUNLAVEY Carole Wedge, President Shepley Bulfinch Richardson.

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

BRAILSFORD & DUNLAVEY

Carole Wedge, PresidentShepley Bulfinch Richardson & Abbott

Thomas Kearns, PrincipalShepley Bulfinch Richardson & Abbott

Wallace Mlyniec, Former Associate DeanGeorgetown University Law School

Jeff Turner, Senior Vice PresidentBrailsford & Dunlavey

John Augustine, Managing DirectorLehman Brothers

Georgetown LawShepley Bulfinch

LLEHEHMM NNAA BBRROOTTHHEERRSS

Carole

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

Initiatives that may impact space needs…capital planning… and dollars.

CAPITAL PROJECTS IN CONTEXT

Strategic Plan

Curriculum Plan

Growth

Technology

Innovation

Administration Change

Sustainability Commitments

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?)

TRENDS IN HIGHER EDUCATION

Institution as Economic Engine

Transformational Student Experience

Changes in Teaching and Learning

Changes in Living Environments

Wally

GEORGETOWN LAW SCHOOL FOUNDED IN 1875

2006 GULC

DOWNTOWN D.C.

GEORGETOWN UNIVERSITY LAW CENTER CAMPUS

BERNARD McDONOUGH HALL EDWARD DURRELL STONE, ARCHITECT

EDWARD BENNETT WILLIAMS LIBRARYHARTMAN & COX, ARCHITECT

BERNARD AND SARAH GEWIRZ BUILDINGHARTMAN & COX, ARCHITECT

BERNARD MCDONOUGH HALL EAST WINGHARTMAN & COX, ARCHITECT

GEORGETOWN UNIVERSITY LAW CENTER CAMPUS

ERIC HOTUNG INTERNATIONAL LAW BUILDINGSHEPLEY BULFINCH, ARCHITECT

GEORGETOWN SPORT AND FITNESS CENTERSHEPLEY BULFINCH, ARCHITECT

THE FUTURE

Tom

INSTITUTION AS ECONOMIC ENGINE

INSTITUTION AS ECONOMIC ENGINE

INSTITUTION AS ECONOMIC ENGINE

INSTITUTION AS ECONOMIC ENGINE

INSTITUTION AS ECONOMIC ENGINE

INSTITUTION AS ECONOMIC ENGINE

INSTITUTION AS ECONOMIC ENGINE

INSTITUTION AS ECONOMIC ENGINE

CHANGING LEARNING STYLES

Problem – Traditional classrooms have key restrictions of limited resource availability and physical isolation.

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.

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.

CHANGING LEARNING STYLES

Media Creation – iPods, iTunes, iPhoto, eBooks, iLectures, videophones, BluRay disks for stereoscopic video, Lectopia, Symposia, Blackboard.

CHANGING LEARNING STYLES

CHANGING LEARNING STYLES

CASE STUDY: XAVIER UNIVERSITY

CASE STUDY: BUCKNELL UNIVERSITY

CASE STUDY: BUCKNELL UNIVERSITY

Jeff

TRENDS TOWARDS ALTERNATIVE FINANCING & PARTNERSHIPS

Limited State Financial Support

Speed of Delivery & Execution

Increasing Construction Costs

Allow for greatest expertise

Community Partnerships2001 2002 2003 2004 2005 2006 2007

Construction Costs

Owner's Budget

15-25% budget shortfall

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*Source: Ayers Saint Gross

TRENDS TOWARDS ALTERNATIVE FINANCING & PARTNERSHIPS

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, & H&C

MARSHALL UNIVERSITY – WELLNESS CENTER & STUDENT HOUSING

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

FY 2004 Usage

City of Manassas26%

George Mason University

5%

Prince William County69%

GEORGE MASON UNIVERSITY – FREEDOM CENTER

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

Increasing competition for high school graduates

Increasingly sophisticated student and faculty/staff quality of life expectations

Universities expected to look beyond campus

TOWN – GOWN DYNAMICS

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

Main Street & Elm Street Grants

Streetscape and Façade Improvements (1)

7th Street Reconstruction (2)

CURRENT NEIGHBORHOOD PROJECTS

BucknellSecond Initiative: Magnifying Neighborhood Improvements

2

Market Street

1

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

LEWISBURG NEIGHBORHOOD STUDY AREA

Market

Street

Strawberry Alley

St. Georg

e

Haw

n Alley

MARKET ANALYSIS CONTEXT

Study Area 82 Owners 181 Parcels 36 Acres

Primary Area 53 Owners 126 Parcels 29 Acres

PROCESS

Community Market Campus Market

Preliminary Program

Project Concept

Implementation Strategy

Market Feasibility

Financial Feasibility

Financing Mechanism, Development Structure

Demand and Supply AnalysisPro Forma, Project Uses

Project Sources, Project Participants

OUTCOMES

For-Sale Housing

Rental Housing

Retail

Conference Space

Hotel

Office Space

Community

Market

Campus Market

Neighborhood Real Estate Product

Drivers

Deman

d Neutral

High

Deman

d

Deman

d Neutral

High

Deman

d

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.

CASE STUDY ROCHESTER INSTITUTE OF TECHNOLOGY

CASE STUDY ROCHESTER INSTITUTE OF TECHNOLOGY Park Point at RIT Retail Concepts 40k GSF RIT Book Store (B&N) 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

John

PRIVATIZATION PROCESSPRIVATIZATION PROCESS

2.2. Establish Project Establish Project Objectives.Objectives.

3. 3. Create the Project Create the Project Vision.Vision.

4.4. Complete Development/ Complete Development/ Market Demand Analysis.Market Demand Analysis.

5. 5. Develop Land, Building Develop Land, Building and Infrastructureand InfrastructureProgram.Program.

6.6. Complete Design.Complete Design.

7.7. Prepare Total Prepare Total Development Analysis.Development Analysis.

1. Conceptualize 1. Conceptualize Project.Project.

13. 13. Choose Developer.Choose Developer.

14. 14. Negotiate DevelopmentNegotiate DevelopmentAgreement.Agreement.

15. Obtain Equity and Debt.15. Obtain Equity and Debt.

16.16. Start Construction.Start Construction.

12. Develop Public/Private12. Develop Public/PrivateFinancing Structure.Financing Structure.

8. 8. Complete FinancialComplete FinancialAnalysis.Analysis.

10. Develop Alternative 10. Develop Alternative Public/Private Finance Public/Private Finance Plans.Plans.

11. Develop Alternative11. Develop AlternativeOwnership, Investment, Ownership, Investment, Development and Development and Operation Scenarios.Operation Scenarios.

9.9. Prepare Development Prepare Development Phasing Plan.Phasing Plan.

Source:Source: Stainback and Associates Stainback and Associates

PRIVITAZATION – FINANCING OPTIONS FOR NEW PROJECTSPRIVITAZATION – FINANCING OPTIONS FOR NEW PROJECTS

There is a broad continuum of financing options:There is a broad continuum of financing options:

Tax-exempt financing can be used for a significant portion Tax-exempt financing can be used for a significant portion of most structures.of most structures.

Publicly Owned and Publicly Owned and

Financed with Financed with

Tax-Exempt Bonds Tax-Exempt Bonds

(Interest Rate: (Interest Rate:

5.5% - 6%)5.5% - 6%)

Privately Owned and Privately Owned and

Financed with Financed with

Equity Contributions Equity Contributions

(Rate of Return: (Rate of Return:

20% -30%)20% -30%)

Between these two extremes, a variety of structures utilizing Between these two extremes, a variety of structures utilizing tax-exempt debt, taxable debt and equity funding are tax-exempt debt, taxable debt and equity funding are

possible.possible.

THERE ARE TWO TYPES OF NON-RECOURSE DEBT: THERE ARE TWO TYPES OF NON-RECOURSE DEBT: ON-CREDIT AND OFF-CREDITON-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.

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.

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.

ADVANTAGES AND DISADVANTAGES – THE GOOD NEWS

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.

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 partner’s expectations are not in line with the capital markets.

Public or non-profit partner is subject to political change.

ADVANTAGES AND DISADVANTAGES – THE BAD NEWS

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.