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

BRAILSFORD & DUNLAVEY. MAXIMIZE THE VALUE OF THE REAL ESTATE ASSETS OF HIGHER EDUCATION INSTITUTIONS. Carole Wedge, President Shepley Bulfinch Richardson and Abbott Thomas Kearns, Principal Shepley Bulfinch Richardson and Abbott Wallace Mlyniec, Former Associate Dean

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

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  1. BRAILSFORD & DUNLAVEY MAXIMIZE THE VALUE OF THE REAL ESTATE ASSETS OF HIGHER EDUCATION INSTITUTIONS • Carole Wedge, President Shepley Bulfinch Richardson and Abbott • Thomas Kearns, Principal Shepley Bulfinch Richardson and Abbott • Wallace Mlyniec, Former Associate Dean Georgetown University Law School • Jeff Turner, Senior Vice President Brailsford & Dunlavey • Robert Dickey, Managing Director Jones Lang LaSalle Georgetown Law Shepley Bulfinch

  2. 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

  3. CAPITAL PROJECTS IN CONTEXT Initiatives that may impact space needs…capital planning… and dollars. • Strategic Plan • Curriculum Plan • Growth • Technology • Innovation • Administration Change • Sustainability Commitments

  4. 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?) QUESTIONS INSTITUTIONS ARE ASKING

  5. Institution as Economic Engine • Transformational Student Experience • Changes in Teaching and Learning • Changes in Living Environments TRENDS IN HIGHER EDUCATION

  6. INSTITUTION AS ECONOMIC ENGINE

  7. INSTITUTION AS ECONOMIC ENGINE

  8. INSTITUTION AS ECONOMIC ENGINE

  9. INSTITUTION AS ECONOMIC ENGINE

  10. INSTITUTION AS ECONOMIC ENGINE

  11. INSTITUTION AS ECONOMIC ENGINE

  12. INSTITUTION AS ECONOMIC ENGINE

  13. INSTITUTION AS ECONOMIC ENGINE

  14. CHANGING LEARNING STYLES Problem – Traditional classrooms have key restrictions of limited resource availability and physical isolation.

  15. CHANGING LEARNING STYLES

  16. 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.

  17. 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.

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

  19. CHANGING LEARNING STYLES

  20. GEORGETOWN LAW SCHOOL FOUNDED IN 1875 2006 GULC

  21. DOWNTOWN D.C.

  22. GEORGETOWN UNIVERSITY LAW CENTER CAMPUS

  23. BERNARD McDONOUGH HALL EDWARD DURRELL STONE, ARCHITECT

  24. EDWARD BENNETT WILLIAMS LIBRARYHARTMAN & COX, ARCHITECT

  25. BERNARD AND SARAH GEWIRZ BUILDINGHARTMAN & COX, ARCHITECT

  26. BERNARD MCDONOUGH HALL EAST WINGHARTMAN & COX, ARCHITECT

  27. GEORGETOWN UNIVERSITY LAW CENTER CAMPUS

  28. ERIC HOTUNG INTERNATIONAL LAW BUILDINGSHEPLEY BULFINCH, ARCHITECT

  29. GEORGETOWN SPORT AND FITNESS CENTER SHEPLEY BULFINCH, ARCHITECT

  30. THE FUTURE

  31. Construction Costs 15-25% budget shortfall Owner's Budget TRENDS TOWARDS ALTERNATIVE FINANCING • Limited State Financial Support • Speed of Delivery & Execution • Increasing Construction Costs • Allow for greatest expertise • Community Partnerships

  32. TRENDS TOWARDS ALTERNATIVE FINANCING

  33. TRENDS TOWARDS ALTERNATIVE FINANCING • 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

  34. OBJECTIVES • Examine financing alternatives for colleges and universities • Review development implementation options • Achieve a win-win situation by aligning stakeholder interests • Understand issues that pertain to developing institution-owned land

  35. ELEMENTS OF A SUCCESSFUL DEVELOPMENT Market Demand (Programs) Development Expertise(Skills) Capital(Money)

  36. INSTITUTIONALVIEW • Long range and short range decisions • Budgeting and finance • University vs. university foundations • Capital campaigns and private money • Partnerships, collaborations and consortia • Tax exempt status and UBITs

  37. CAMPUS DEVELOPMENT • Core facilities • Academic facilities • Research • Utilities and infrastructure • Non-core facilities • Residential and auxiliaries • Administrative and support facilities • Sports and athletics • Campus retail

  38. CREDIT SPECTRUM OF FINANCING ALTERNATIVES HIGH CREDIT RATING IMPACTS LOW General Revenue Bonds Auxiliary Revenue Bonds Stand-Alone Revenue Bonds Project-Based Revenues (Off-Balance Sheet, Separate 501(c)3) Joint Venture or Private Development POTENTIAL IMPACT ON UNIVERSITY’S DEBT CAPACITY LOW HIGH COST OF CAPITAL DEGREE OF UNIVERSITY CONTROL HIGH LOW

  39. DEVELOPMENT ASSESSMENT MATRIX OPTION 1 OPTION 2 OPTION 3 OPTION 4 OPTION 5 Ground Lease (no participation) Ground Lease (with participation) University Development Sale JV Development Risk Level Low Med-Low Medium Med-High High All cash flows depend on the success of the project. The risk is shared with the JV partner. All cash flows depend on the success of the project. University assumes all risks. Reasons All cash flows are certain. Cash flows are certain, but the viability of the lessor is a risk. Cash flows somewhat dependant on the success of the project. Results Timing / Control No futurecontrol. No control until the lease expiration (30 - 40 year minimum). No control until the lease expiration (30 - 40 year minimum). Control shared with the JV partner. University has complete control. Return Expectations Recovery of capital investment plus some growth factor. A fixed annual return based on the value of the underlying land. Some fixed annual return and some upside potential based on success of project. Open to negotiation with JV partner. University would receive market-based returns Cost Impacts None. Ground lease can be structured to cover debt carry. Ground lease can be structured to cover debt carry; additional risk. Possible equity contribution. University funds all acquisition and devel. costs until completion; long-term refinance.

  40. QUALITATIVE ANALYSIS OF DEVELOPMENTALTERNATIVES

  41. CAPITAL VS. CONTROL Programmatic and Quality Control Capital • Quick return • Building to commercial standards • Discipline of market forces • Patience, long-term view • Building to 100-year institutional standards • Flexibility

  42. – – – + + + OWNERSHIP STRUCTURE REVIEW University Owned • Lowest cost of capital • Highest degree of control • Retain surplus cash flow • Uses debt capacity • Uses University contracting process Affiliated • Low cost of capital • Reasonable degree of control • Avoid University contracting process • Level of University involvement can impact University credit 3rd Party Developer • Potential impact on debt capacity • Fastest process • Highest cost of capital • Lowest degree of control

  43. THE DEVELOPER SPECTRUM Market Demand (Programs) • At risk developer • Fee developer • Construction manager • Design / build • General contractor Development Expertise (Skills) Capital (Money)

  44. STEPS FOR SUCCESS • Clear objectives within university • Selection and agreement process • Public contracting laws • Board / foundation approval • Master developer vs. project developer (overall planning) • Developer (fee / at risk) alignment of interests • Capital (investment partner, joint venture partner) • Private foundation latitude and flexibility

  45. EVALUATING DEVELOPERS AND SELECTION CRITERIA • Understanding the concept of the development plan • Previous experience with similar projects • Financial stability • Team qualifications • References

  46. DEVELOPMENT DOCUMENTATION • Feasibility • Market analysis • Highest and best use analysis • RFQ / RFP • Concept proposals, principles for discussion • Exclusive negotiating agreements • Development agreements • Joint ventures, limited partner and equity partner agreements

  47. UNIVERSITY 101: WHAT DEVELOPERS NEED TO KNOW • University organization • Institutional view • Campus development • Political context • State vs. system-wide authority • Overall organization • Shared governance • Decision making • University foundations

  48. LESSONS LEARNED • Do your homework • Capital versus control: determine optimal position • Make the deal a win-win • Understand alternatives • Understand third party capital • Moody’s message…

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