Privatized Housing Dos and Don'ts

Privatized housing works for both the institution and developer as long as everyone’s needs are clear. Here is a list of dos and don’ts to help navigate the way.

Don’t assume the project costs nothing. Much like the free lunch, free housing doesn’t really exist. “Privatized housing affects your debt capacity,” explains Florence Mayne, assistant to the executive vice chancellor for Business Affairs for the University of Texas. “The assumption is the school will not allow the facility to fail.” Chuck Fuller, assistant vice president for Business Services at the University of North Texas in Denton, agrees. “It’s on our property, so the bonding agencies presume it’s ours,” he says.

Do understand the difference between your goals and the developer’s.
“Universities are, by nature, a long-term interest that puts the students first,” says Jim Wilson, executive director of Real Estate for the University of Texas. “Developers, on the other hand, tend to be more interested in building, selling and getting out quickly.” These two approaches can cause maintenance friction. “When something goes wrong in one of our buildings, we have a 24-hour crew to take care of it,” says Fuller. “Can I expect the same with a private developer and manager?”

Major repairs also come under question. “If the lease is up in a few years and the roof needs replacing, are we going to get stuck with it?” asks Wilson.

“It comes down to accounting,” explains Fuller. “We budget for a year, and that number doesn’t change, no matter the cash flow. Developers tend to look at what’s in the bank when making decisions.”

Do create a feasibility study. Because of the above two points, the University of Texas, which has privatized buildings on four campuses, but hasn’t allowed any new projects since 1999, created an official policy that can be viewed at www.utsystem.edu/reo. This policy demands certain criteria be met before allowing a developer to build on school land.

“In the end, if it is deemed that housing is needed, it will usually be cheaper for us to build it ourselves,” says Wilson. “With school services like legal, financial and real estate at our fingertips, along with low rates and good delivery methods, it just makes sense.” Not only does the school have total control, students will get a break as well. “The developer may pay from .5 percent to 1 percent more in interest than we would,” says Fuller. “That usually translates into higher rent.”

Don’t treat every relationship the same. “There is no cookie cutter when it comes to these ventures,” says Fuller. “You can have a cooperative plan where the developer builds but the school participates on the specs or a situation where the developer builds on his own land but wants the tax exemption status so he comes to you after the fact. In each case, you have to consider how the project affects the university and the students.”

Fuller feels that the partnership of private housing on school property is falling out of favor. However, he presently has two developers building on their own land in town. In one case, the developer came to him early in the process for input.

“We are working with this developer on points like the building’s aesthetics and whether or not he can use our logos and tie into our transportation system.” Since the University of North Texas in Denton is a large music school, the developer asked Fuller if students want practice rooms. “I told him we don’t need practice rooms but a small performance venue would be nice. We may also deliver high-speed data lines so students can have the service they are accustomed to.”

Do put the student first. Perhaps the biggest sticking point is creating the sense of community and enforcing the codes of conduct that students and their parents expect. “Can we install a resident assistant in the building who knows everyone and can deal with problems in a sanctioned way, or will a private manager just tape a note to someone’s door?” asks Fuller. “We see housing as instrumental to our programming, not just a place to sleep. We need some level of control.”

Winkler agrees. “If there is an alcohol violation, for instance, at another property, the manager may not know and may not care,” she says. “That will not do in student housing.”

Don’t forget the developer. For a developer and management company that hasn’t dealt with student issues before, the culture shock can be immense. “There is so much potential for problems that would throw an average manager,” says Winkler. “For instance, students often room with strangers, which can be touchy. Populations are diverse, as students come from around the world. And in what other market would 300 units go vacant at the same time?”

Winkler strongly suggests finding a manager who thinks out of the box and then maintaining constant communication with him. “I am on the phone with the managers up to four times a day talking about student policy or procedure.”

To protect the management, UT Dallas requires a Certificate of Eligibility. Students have to be enrolled, maintain grades and stay out of trouble to earn it. Housing can’t lease to anyone without it. If the student leaves, the burden is on him to fill the empty space or pay out the lease.

“It makes management’s life a bit easier,” says Winkler. “And it gives us the control we need.”

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