For many years now, colleges and universities have looked to public-private partnerships (P3s) as the vehicle for delivering modern, apartment-style student housing facilities with quality amenities that enhance the overall student experience.
By way of example, Florida International University (FIU) used a P3 to provide student housing (with waterfront views) at its Biscayne Bay campus. Similarly, the University of South Florida (USF) used a P3 to expand its housing program and accommodate up to 2,000 additional students. Building on the success of that project, USF recently issued a competitive solicitation for a P3 partner to redevelop a former golf course as a mixed-use district with student housing, academic facilities, hospitality and recreational spaces. Many similar P3 student housing projects are underway throughout the United States.
In the typical student housing P3 project, the educational institution contributes the land (via a ground lease) and limited funding, if any. The development and construction costs are paid from the proceeds of the loan the P3 developer secures for the project, and the rental payments generated over the term of the agreement service the loan (with the rents typically capped at rates established by the educational institution). The P3 partner may or may not manage and operate the project following completion of construction, depending on the institution’s preferences or needs. Once the debt is paid, the ground lease is terminated and the property and improvements are owned outright by the educational institution.
Amid a broader context of a statewide affordable housing shortage, elected officials and public administrators should take note, as many of the key factors that make P3s an attractive option for universities apply equally to local governments seeking to develop affordable/workforce housing:
• Limited funding for capital projects. Like colleges and universities, local governments have many pressing infrastructure needs and limited resources for funding their capital projects. For public entities, additional legal and regulatory constraints further limit the options available for such funding. P3s provide access to private financing project costs, with many options available for structuring a transaction to obtain tax-exempt financing for all or a portion of the project.
• Contribution of land as primary consideration for the transaction. As local governments are often among the largest landowners in their respective jurisdictions, P3s are well-suited for public entities whose main contribution to a project is a ground lease (at a nominal lease rate). Moreover, a lease allows the local government to retain ownership of its fee interest in the land, and avoid the potential for local community opposition that often accompanies a sale of government property.
• Structured transactions with caps on rental rates. Student housing P3s are often structured with built-in constraints or caps on rental rates. The success of the model in delivering affordable housing options for students is particularly relevant for workforce housing projects which share the same goal, with rental rates capped based on household area median income (AMI).
• Flexibility in tailoring transactions to the needs of each community. As we have mentioned in other blog posts, P3s can be structured to accommodate multiple uses and operational objectives, with many options for tailoring agreements to the needs of each project. In addition, as market conditions for financing or construction costs fluctuate, P3s provide local governments and the P3 partner with much flexibility to allocate and share risks which would may otherwise preclude the local government from proceeding with the project altogether, if such risks were to be borne entirely by the government alone.
Notably, as part of the Florida Legislature’s establishment of a new framework (with development incentives and tax benefits) for promoting affordable housing, the Live Local Act requires municipalities to publish a list of all government-owned properties within the municipality that are suitable for affordable or workforce housing development (including through a long-term lease), and further requires each municipality to review the inventory list at a public hearing every three years. Once published, these inventories of properties could serve as a useful starting point for local governments and potential P3 partners seeking to meaningfully address the need for affordable and workforce housing in their communities. To this end, the examples of many P3 projects that have been successfully implemented in other jurisdictions, including student housing projects, may prove particularly instructive.
