University enrollments are at an historic high and an increased student population requires that universities grow in other areas as well, such as housing and facilities. In recent years, universities have been partnering with private developers to advise and help them manage this growth. Previous posts on this blog have highlighted the role that higher education can play in economic development and in downtown revitalization.
There are many benefits to a university in seeking a private partner as they expand and redevelop their facilities. Reduced budgets, hiring freezes, and capital cutbacks mean many university departments are already working at capacity. Hiring a private developer to take on the work of managing major redevelopment greatly reduces the pressure on campus staff and brings in development expertise that the in-house staff may not have. The result of that expertise can mean reduced construction costs, expedited timelines, and better buildings that capitalize on the latest academic trends.
The move to using private developers to create facilities also has the added benefit of providing access to new sources of private funding unavailable to universities, and access and expertise in using funding sources such as government grants, loans, and tax credits, that can significantly reduce the cost burden on the public partner. Private development partnerships can even provide a university the option to complete the project through off-sheet financing if their current debt structure does not necessarily allow for the undertaking of new, costly projects, thus allowing them to still meet the needs of their students despite concerns of debt capacity.
Private developers also see many benefits in pairing with a university partner. In some projects, they may only be advising their partner, therefore earning a fee but not necessarily putting in any equity. If the developer’s involvement goes beyond simply advising, university partners can greatly reduce the risk of a project by offering access to favorable or otherwise unobtainable locations in which to site projects, and potentially, guaranteed tenancy. University partners also have access to cheaper capital as they can borrow money at cheaper rates than developers can.
These partnerships can lead to some spectacular results. One successful example is the Core Community project undertaken by Bucknell University, located in central Pennsylvania in the town of Lewisburg, in partnership with Radnor Property Group. The multi-phase project created a number of downtown anchors – relocating the University bookstore, a downtown Inn, an art gallery, and relocating some of its business operations. These redevelopments, all adaptive reuse projects in Lewisburg’s Central Business District, became regional icons and helped strengthen downtown core, the regional economy, and the town’s relationship with the university.
By partnering with this developer to manage a large and complex undertaking of multiple historic redevelopments, Bucknell was not only able to bring expertise into the project to manage so a large-scale undertaking but also able to access state funds, tax credits and private capital they otherwise could not in order to fund the undertaking. The developer purchased, redeveloped, and now owns and operates the buildings, while Bucknell guaranteed their partner a successful investment by signing a long-term lease. As a result, Bucknell’s upfront investment was significantly less on a project completed at a much cheaper overall price than they could have managed on their own, while the developer was guaranteed the full benefits of a successful development undertaking.
Closer to home, UNC-Charlotte has also been capitalizing on the academic trend to move facilities downtown, opening the eye-catching Center City building in the city’s first ward in 2011. While the UNC-Charlotte had previously developed a strategic plan in which it stated its desire to create an urban campus, it was Dan Levine of Levine Properties who approached the university with a partnership proposal. His firm owned 11 acres in the downtown first ward district and sought to undertake a district-wide revitalization project. Together, along with the City of Charlotte, the partners developed a plan for First Ward Park, a new urban park and commercial district to be anchored by UNC-Charlotte’s new Center City campus.
UNC-Charlotte purchased land from Levine Properties at a discounted price, and acted as their own developers as they constructed the first crucial piece of the district plan in 2011. Levine Properties is managing the development and construction of the new urban park and infrastructure improvements, for which the City will reimburse the firm upon completion. The First Ward Park was completed in late 2015, thus setting in the key elements to entice more development district-wide by the private market.
Most all of the partnerships undertaken between private developers and universities have proven to be successful. Each project is unique, and its structure must be carefully adapted in order to meet its needs. As these partnerships are still a somewhat new phenomenon, there is a learning curve, particularly for universities, in learning how to best structure the partnership in order to achieve the greatest benefits for all partners, particularly because the partnerships surrounding these buildings can last for many, many years. There are developers who specialize in partnerships with universities who can offer a wealth of knowledge in determining the best structure for each unique situation. When choosing a development partner, universities should look for a firm that not only can create quality work, but also can support them through out the process with a broad array of services, access in utilizing third-party financing, and expertise in managing complex financials. When done right, there projects have the ability to create projects that benefit the university, the developer, and the community in which they are built.
The Development Finance Initiative’s Director, Michael Lemanski, will be moderating a session on how universities are engaged in downtown redevelopment at the ULI Carolinas’ Meeting on March 1, 2016. Representatives from the City of Charlotte and Levine Properties, among others, will be on hand to discuss the opportunities and challenges of these types of partnerships.
Lauren Joyner is a second-year real estate and place-making student at the UNC Department of City and Regional Planning and is currently a Community Revitalization Fellow with the Development Finance Initiative.