This is the first article in a 7-Part Series.
Each year, more and more universities are partnering with private sector parties (e.g., developers) under the notion that the whole is greater than the sum of its parts—that, together, these partners can do more, and do it efficiently and effectively. And when it comes to repairing or improving the country’s aging campuses and their facilities, there are a lot of opportunities for partnership—including facilities’ design, construction, financing, and long-term operation and maintenance. Cue public-private partnerships (“P3s”).
What is a P3, you might ask, and what does one look like? That’s a surprisingly tricky question. At the moment, there is no common definition of a P3, there is no centralized governing body overseeing P3s, and there is a limited breadth of experience in the industry. So in the simplest terms, a higher education P3 is a development/deal structure in which a public or private college or university takes on a private sector partner (or partners) to share in the resources, risks, and incentives that come with the development and operation/maintenance of campus facilities. The National Council of Public-Private Partnerships identifies 18 different legal and financial P3 structures, and each P3 agreement is unique to the partnership, or deal.
P3s are not a silver bullet. They are not short-term engagements, nor are they without their challenges; indeed many in the P3 world think of them as marriages. They are simply one type of alternative delivery method for schools to finance projects that might otherwise go unfinanced, to leverage assets like land, to transfer risk, and to ensure operational success for years to come.
Colleges and universities are increasingly looking to P3s for many reasons, but most often because funding is a challenge. With campuses that are only ever aging, and given the idea that new facilities can be important differentiators, schools are looking for creative ways to continue improving the student experience—even in the face of debt financing/capacity limitations. Beyond offering a vehicle for financing, P3s can also allow for development and operational risk transfer. Specifically, P3s can be structured to leverage expertise, avoid potential institutional procurement challenges, improve operational efficiencies, and more. In short, if a university is at Point A and wants to get to Point B, P3s are one way to bridge the distance.
The most common institutional profile for a P3 project includes a large public university whose housing must generate revenues to cover all operating and financing costs in an increasingly competitive market. With that said, private institutions have begun utilizing partnerships more frequently, as well, as a way to address housing demand without negatively impacting an institution’s credit rating or access to capital. Note: Regardless of whether an institution is public or private, a partnership with a developer is considered a P3. Likewise while P3s in higher education initially were sought after only for housing projects, now the engagements apply to a range of campus assets, including mixed-use featuring retail, student unions, campus rec, hotel and conference centers, campus edge, health & wellness centers, hospitals, and workforce/faculty/staff housing, among others. Energy P3s are also starting to gain traction in the higher ed space.
As deal structures, P3s are incredibly complex. Each one is different, and each is almost unwieldy due to its many moving parts and parties. The stakes are also high because P3s are true partnerships—as a university, you’re not picking a one-time collaborator for a quick job, you’re picking a partner who you’ll work with for potentially the next several decades… who your successors will need to successfully work with, and who will work hard to improve your students’ experience for years and years to come.
P3s get a lot of press these days, with some people praising them and others demonizing them. Indeed, each claim can feel justified depending on how you look at P3s as a concept and which case studies you consider. But P3s are not black and white. They are potentially a world of opportunity, resources, creativity, and collaboration… and at the same time, potentially a world of misrepresentation, control issues, and difficult relationships. So here’s the interesting part: Which world you end up in is up to you and your specific project. This is not about chance or luck, because P3s absolutely can be designed to ensure success. It just takes a whole lot of education, thoughtful planning, and vision. And, as needed, the wisdom to walk away.
If you’re interested in learning more about P3s, we recommend reading: