David Wesse and Robert Stickney are consultants in KPMG's Higher Education Consulting Practice. David Koch is a former KPMG manager and is currently a principal with Education Environments. Stickney can be reached at rstickney@kpmg.com.
Every year hundreds of thousands of prospective college freshmen and their parents visit college campuses around the United States. Often one of the first buildings they enter is a student residence hall — the prospective student's possible home for at least their first year in school. These first impressions are very important to the students, their parents (who may be paying the bills), and the university.
What factors are most important to students and parents in selecting a college or university? According to Terry Sichta, Georgia Institute of Technology's special assistant to the Associate Vice President for Auxiliary Services, "Academic programs and location are the major factors used to develop a short list' of schools for students to visit. During visitations, the deciding factors become ambiance, assistance programs, and the quality, type and style of student housing." Secure and well-maintained housing facilities that provide students with privacy combined with creative residence life programs, support the admissions/recruiting process and greatly assist the university in attracting highly qualified students. Residence halls also provide significant auxiliary revenue streams and supplementary funding for other areas of the institution.
History
The earliest residence halls were developed at Oxford and Cambridge during the 13th century and were built on the model of a total academic environment. Professors served as house masters, common living areas and libraries provided socialization and study space, students slept in private or shared rooms, and meals where taken in a central dining room that was shared by faculty and student alike. Typically, buildings were no more than three to four stories in height, and living and study facilities were provided for every 20 to 30 students.
This model persisted through the first half of this century with some interesting manifestations. Josephine Louise House at Newcomb College in New Orleans featured a central dining space with a balcony for string quartets to serenade the young female students as they took their evening meal; servants quarters in the attic of the building allowed students to bring their maids to campus with them.
During the 1950s and continuing through the 1970s, the various interpretations of the International Style made their way to the college campus. The new model of student housing consisted of high rise dormitories clustered around a central elevator core and rooms laid out in double loaded corridors with as many as thirty to forty students sharing "gang bathroom" facilities. Generally all of the rooms were configured for double occupancy and the furniture within (desk, bed, closet, and a minimal amount of bookshelf space) was anchored in place. Social lounges served up to 60 students per floor. Study space, since it did not provide revenue, was kept to a minimum. Eating facilities were provided at central dining halls that served thousands of students at scheduled times and were remote from actual living areas.
The establishment of the high-rise model of student housing was a national trend due to low interest financing available from the federal government. The housing shortage that manifested itself in the mid 1940s in U.S. residential markets made an impact on college campuses during the 1950s as the first of the "Baby Boomers" reached college age. On many campuses, the need for new student housing was unprecedented and required the quick construction of dormitories that could accommodate large numbers of students. Since the majority of incoming students had grown up sharing a bedroom with one or more siblings, or had served in the military prior to arriving on campus, the shared room-communal bath model was acceptable.
Students' Housing Needs Have Changed
Older, "dormitory style", residence halls may provide a negative first impression for both students and parents, thus hampering the admissions/recruiting process. Poorly maintained and outmoded facilities can drain university finances. Empty beds represent non-productive assets that occupy valuable space and cost hundreds of thousands of dollars in upkeep and maintenance every year. Reductions in federal and state funding, increases in deferred maintenance expenses, increasingly stringent building and life safety codes, and the requirements of the Americans with Disability Act further exacerbate the pressures on college administrators. The "dormitory" building boom of the 1950s and 1960s has left many campuses with high density models of student housing that are outmoded and disliked by today's students.
Today's students have a very different background from students 30 and 40 years ago. The majority of today's incoming freshmen grew up in single-child or two-children families and have had their own bedrooms since an early age. They are more consumer oriented, and are very likely "shopping" several colleges and universities. Where a student will live is beginning to have a major impact on the college selection process. Today's students may be required to share a room during their freshman year, but they are unlikely to stay on campus as upperclassmen unless the campus can provide such options as an apartment or private rooms similar to off-campus housing. What used to be considered luxuries—kitchens, private bathrooms, study lounges, and social spaces—are now considered basic necessities. Internet connectivity and cable television systems also have become standard requirements.
Student Housing Trends
How does a college or university react to this situation and meet the increasing demands of its students? New Orleans' Tulane University reacted to growing off-campus-housing competition by providing a variety of new housing models ranging from single and double rooms in suite arrangements with bathrooms to two to five bedroom apartments with full kitchen facilities. Other universities are converting their housing to residential colleges. Students live, eat, study, sleep, and attend a significant portion of their academic courses within the residence hall itself. Communal dining halls, academic classrooms, faculty apartments, technology centers, and small libraries are just some of the amenities provided within the residential college.
The primary purpose is to create a living and learning center that brings together students of similar interests. This model has been particularly effective when utilized in conjunction with a specific curriculum, such as a French House where students are required to speak French, eat French cuisine, and receive daily French television broadcasts. Meanwhile, the private sector has recognized student demand for housing as an opportunity. Mid-size developers such as Capstone, JPI, Century, and Allen & O'Hara have been successfully building and managing student apartments off-campus for more than a decade. Within the last few years student housing has also caught the attention of major developers such as Trammell Crow and LaSalle Partners.
Off-campus amenities provided by these firms include:
New companies and other consultants are working with colleges and universities to integrate learning activities into both on- and off-campus projects. Living/learning programs include providing on premise classrooms, special support for incoming freshmen, mentoring by upper classmen, and inviting student residents and guest faculty to buffet dinners. Facilities and equipment are provided for distance learning sessions and group study sessions, and programs are designed to match students' study habits and enhance learning needs (i.e., providing tutors from 10 p.m. until midnight).
Need for Funding
Meeting the changing demands of the student housing market often requires wholesale renovation and/or new construction, creative management and, most of all, funding. Furthermore, once the model of housing has been developed, built and occupied, it must be maintained which requires adequate capital reserves. Listed below are four options to financing a revitalized student housing program.
Current capital reserves and development programs: Very few schools exist with adequate resources to fund a revitalized housing program. While the use of development campaigns can be useful to provide sources of funding, donors typically are more interested in funding academic and athletic facilities than providing funds for the renovation or construction of student housing.
Debt financing through bond issuance: This is the most commonly used method of financing and provides the university with the greatest degree of control over the development process. The disadvantage is that the university takes on risks associated with leveraging its assets. The school must budget annual reserves to pay down debt and, although often overlooked, should establish capital reserves for long-term maintenance.
Off balance sheet financing: This involves establishment of a separate 501 (c) 3 corporation that finances and manages the university?s housing operation. The new not-for-profit corporation is often established with a board comprised of university board members and administrators, as well as outside individuals. Once the corporation is in place, the university donates the residence halls to the corporation (and leases the land) to provide an asset base for the new not-for-profit organization. The corporation can then issue debt to fund renovation and/or new construction activities. The advantage of this approach is that the financing is under the umbrella of the new entity and is not included on the balance sheet of the university.
Land lease: Under this scenario, the school sells off the capital asset (i.e. the existing residence halls) and leases land to a private developer in exchange for an annual lease payment and/or a percentage of operating profits. The developer renovates the existing residence hall, and/or erects new construction projects. The advantage of this approach is that the developer is responsible for the financing of the projects, and is generally responsible for the maintenance and the operation of the facilities. The university is able to reduce its administrative costs and preserve precious tax exempt debt dollars for other uses. The disadvantage to this approach is that the university loses some control over its housing system (this can be avoided by a carefully structured contract with the operator), and the developer may require university guaranteed occupancy levels.
Developing the Plan
With unhappy students, outmoded residence halls, and a lack of traditional funding, what are progressive university administrators doing to solve these problems? Many are either forming internal task forces, retaining experienced consultants, or both. Their goal is to develop near term and long-term housing strategies and plans. The first planning step is to determine market trends and the university's position within its market through a market study. The study should consist of four main parts:
The proformas serve as a "guide" in the decision-making process. If the university decides to move forward on a traditional basis, the proformas serve as the financial guidebook to proceed with financing, construction, and operating costs. If the decision is to pursue a non-traditional approach, the proformas offer a means of evaluating outside proposals.
Conclusion
Universities such as Georgia Tech, the University of South Florida, the University of California at Davis, George Mason University and many more have developed innovative and creative housing plans. They have recognized that student' needs and demands have changed and are continuing to change. They are committed to changing with them. Other universities which do not have a plan may face a future of increasing vacancies in student housing as progressive universities and private sector developers provide the housing that today's students and their parents are demanding.