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Private Investment Revitalizes Campus Housing, Dining

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The University of Kentucky (UK), Lexington, is in the midst of a campuswide transformation anchored by new housing and dining options, either under construction or recently opened, and a $175 million, state-of-the-art student center that just broke ground. These major projects reflect our belief that quality of life—not just inside, but also outside the classroom—is the fabric of success for our students.

What has enabled this accelerated transformational pace? While we used a traditional funding model for the student center, the housing and dining components of this campus revitalization are being built with private investments through two public-private partnerships (P3s). 

In 2011, we contracted with an independent firm to review our housing inventory and develop a master plan for a more thriving residential campus. With the exception of four suite-style residence halls built in 2005, our housing inventory was more than 45 years old. Many of our residence halls lacked not only modern living space, but also collaborative spaces and classrooms where students could be mentored by faculty and build welcoming, vibrant communities of their own. We knew we had to rebuild nearly all of it—replacing one or two residence halls wasn’t enough. 

We first looked at funding construction with our own debt, and managing the process internally. After considering our preferredtime frame and state limitations on bond funding, thestrategy of a public-private partnership was advanced. A competitive process led us to sign multiphase agreements with Education Realty Trust (EdR) that have provided $348 million in private equity—100 percent debt-free—to build 12 residence halls containing 5,733 beds and encompassing approximately 2.1 million square feet.

A public-private partnership enabled the University of Kentucky to keep rental rates affordable while providing students with high-quality, modern residence halls, such as the $25.2 million Central Hall I and II.

By this fall, approximately three years after forming the partnership, UK will have opened 4,592 of those new beds—and demand for them is running at 138 percent. In addition, the new residence halls feature 148 study rooms; 40 multipurpose rooms; 14 classrooms; and rent-free space for university dining facilities, coffee shops, and programming. Our housing has granite countertops, Tempur-Pedic mattresses, and other high-end amenities. Although UK doesn’t require first-year students to live on campus, an unprecedented 88 percent did so in 2014, underscoring the importance of residential life to both students and their families. 

Weighing the Considerations

Thanks to the P3 model, by fall 2016, all of UK’s undergraduate housing will be either brand new or built since 2005. When negotiating the agreement, UK employed a TRIPP (term, return, investment, program, and principles) strategy.

  • Term. We signed a long-term agreement, up to 75 years, whereby our partner—branded as UK Housing—manages and operates those facilities, which are designed to meet LEED Silver standards. We lease the land, and our partner builds the residence halls. The university retains ownership upon construction completion, and our partner receives operating revenue—primarily through housing fees—and pays the maintenance and operating expenses. 
  • Return. From the rent paid, we wanted a return sufficient enough for us to pay for residential life programming and other expenses, such as landscaping.  
  • Investment. We knew we needed 100 percent equity; we didn’t want any concerns raised about our taking on more debt. In fact, the P3 preserved UK’s limited debt capacity for other high-priority capital investments while maintaining an Aa2 credit rating with Moody’s and an AA rating with S&P. 
  • Program. UK continues to manage the residential life component in the new residence halls, as well as the living/learning programs in which several thousand students enroll each year. It was important for us to include student leadership from our college of design in finalizing color schemes and furniture choices.  
  • Principles. One guiding principle was that the new facilities needed to have the same look and feel as other buildings on campus; that meant using specific colors of brick and limestone. In addition, we wanted first-class facilities that would be maintained for the term of the agreement. For example, our partner allocates $212 per bed, per year, for a replacement reserve. That amount will increase over time, with inflation.

UK developed an aggressive timeline for demolishing outdated housing facilities and erecting new ones in their places. The high volume allowed for better construction pricing which, in turn, has enabled us to greatly improve the student experience without making a major adjustment to our residential pricing model. As a result, we expect to hold housing increases to 3 to 4 percent annually, less than in previous years. 

Dining Partnership

With the number of students living on campus projected to increase 27 percent, from 5,100 in 2011 to 6,500 in 2014, we needed to consider how the additional housing would affect our self-operated dining operations. So in 2013, we commissioned a study and dining master plan. 

To bring in healthier food, more dining options, and better locations, we again went the P3 route. We signed a 15-year, $245 million agreement with Aramark, which has invested more than $48 million in the first academic year. This fall, UK Dining will open a new 82,000-square-foot dining facility that went from concept, to design, to build in less than 12 months. 

This building will support the Food Connection, a collaboration between UK Dining and our College of Agriculture, Food, and the Environment, to enrich research, teaching, and education. 

In the first year of the dining partnership, we:

  • Reduced pricing for every meal plan, in one plan by 26 percent.
  • Saw a 30 percent increase in meal-plan purchases.
  • Increased the amount of local purchases by 11 percent, to $2 million.
  • Added more dining locations, expanded the brand concepts offered from 20 to 35, and increased the number of student employees by 11 percent. 

Although UK dining and housing facilities are now built, operated, and managed by university partners, students aren’t likely to know that. Making that partnership seamless for our students, however, takes active management and a commitment of time and resources on our part. For example, our auxiliary services operation manages these partnerships on a day-to-day basis. Every Tuesday our internal team meets with our dining partner, followed by a meeting with our housing partner every Wednesday. We use those 90-minute meetings to review plans and progress, work through open issues, and plan for the next semester.   

As we anticipated, the improvements in housing and dining are positively influencing student recruitment and retention. We received more than 22,000 applications for admissions in 2015, the highest number in our history.

Most important, this transformation underscores UK’s commitment to putting students first in everything we do. 

SUBMITTED BY Eric N. Monday, executive vice president for finance and administration, University of Kentucky, Lexington.

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