By Dr. Scott M. Helfrich, D.Ed., Director of Housing & Residential Programs at Millersville University and the owner of Helfrich Advisory Services, LLC. Bio below. | Cover photo courtesy of Millersville University.
There are many variations of public-private partnerships (P3) between a university, the property owner (if not the university itself), and a third-party management firm. This article will explore the relationship between those entities, including some nuances of operations that can occur at different institutions.
The financier of a student housing project, particularly those that are providing bond-financing, will require an entity to manage the project whether it is a housing management firm or the university itself. This gives the financier a certain level of assurance that their investment will be managed soundly as a contracted manager will have expert working knowledge of occupancy, marketing, facilities operations, capital upgrades, and financial reporting. A financier may also demand that a university change the management entity should project operations not meet expectations and desired outcomes, particularly for not fulfilling its financial obligations.
Because the property owner will oftentimes be a non-profit 501(c)(3), such as a university foundation or student association, their core business is not managing student housing as would be the case with specific management firms. In some cases, the property owner may employ the university to be the manager through their existing housing, residence life, and facilities departments along with associated personnel to facilitate necessary day-to-day processes, such as rent collection and accounting. However, this article will concentrate on the relationship with student housing management firms.
A management agreement is negotiated and signed between the owner and the management company, which lists the specific responsibilities and expectations of both the owner and manager; essentially, this is a formal scope of work. Additionally, a management fee is also negotiated between both entities based on a percentage of the annual net revenues earned by the property. This is normally between a range of 3 – 5%, and is a major criteria upon which management companies are selected by property owners. The management fee can be paid in full annually, quarterly, or even monthly dependent upon what specific payment schedule is negotiated.
The project owners’ representatives will include various stipulations in the agreement dependent upon their personal and professional philosophy for how the project should be managed. However, nothing is unilaterally decided. In this regard, there is a certain amount of agreed upon accountability that is built into the agreement. The major provisions include the manager providing and leading the following support services: accounts receivable, accounts payable, financial reporting, human resource management, marketing, purchasing, and facilities operations. There can also be the inclusion of some semblance of a residence life program, which would include hiring and training a community assistant staff and providing resident programming.
These functions are coordinated through the management company’s corporate office while the property is, in essence, a branch office as would be the case for all of the properties that the company manages. National housing firms will own and manage their own properties while also managing others for colleges and universities in P3 arrangements. A management agreement is typically a multi-year contract lasting between 3 – 5 years, but can vary depending upon the market conditions of where a property is located and with whom the agreement is made. Also, a property owner can essentially find another management company to take over when the current contract has expired.
There are cases in which a university may decide to manage the community itself and potentially save on management costs if permitted by the financier. However, this comes with cautionary trade-offs as a P3 arrangement with a third-party manager can be less expensive to operate, particularly if a university has collective bargaining agreements with its employees. In some cases, a management company can actually purchase the property outright and manage it as its own asset.
It is important to understand that all operational and capital costs are paid for by the revenues earned from the project and not from the university or any other source. This is why P3 housing projects are auxiliary units that are independent from the university’s finances; P3s are supposed to be financially viable on their own accord. However, there may be various university expenses that are paid for through the project for services that may be rendered by the university, such as a ground lease, telecommunications, and utility costs. This is even more evident if the student housing community is actually located on campus, in which case it may be tied into the university’s existing physical plant infrastructure. P3s that are wholly located off university land will independently purchase and manage all infrastructure services.
The property management company is also ultimately responsible for making sure that the appropriate steps are taken to make sure that the debt service is fully paid on time per the provisions illustrated in the bond document agreements that led to the development, financing, and construction of the property. The management company itself does not contribute any of its own funds for the operation of the property.
The management company recruits, hires, trains, and supervises all of the employees who work at a P3 student housing community. This includes the community manager, maintenance supervisor, leasing and marketing manager, community assistants, and any other associated team members. In some cases the property owner may want a hand in being a part in the interview and hiring process for the community manager and maintenance supervisor as those two individuals will be the key personnel the university with interact with on a day-to-day basis. As with all other operational costs, the salary and benefits of all property personnel are paid through the monies earned from the bed revenue and any ancillary income. While the university and / or the property owner does not directly hire, supervise, and evaluate the property personnel, they can have considerable influence in recommending that personnel be changed, particularly if they are not satisfied with performance.
LEASING AND MARKETING
The most crucial responsibility of the management company is to successfully fill the property’s beds with paying students. Occupancy is the lifeblood of any P3 project. In order to ensure occupancy to meet the debt service covenants, there must be a sound strategy in order to market the property to prospective student residents. The management company does this through traditional and social media avenues along with touring residents through the facility to see the various housing options that are available. When a student is ready to commit, the leasing and marketing manager, or their designee, will have the student sign formal paperwork contractually binding them to a lease agreement. These agreements are always subject to the local and state landlord-tenant laws. In some cases, the property may also come under the jurisdiction of the university’s mandatory residency requirement that mandates that students live on campus or in one of its affiliate housing options.
Lastly, the management company is responsible for maintaining and upgrading the property as needed. This will include, but is not limited to, the following: life / safety equipment, unit cleaning and preventative maintenance, exterior lighting, HVAC, swimming pool operations, fitness center equipment, key control, and landscaping. The maintenance team will be able to tend to most of the daily needs of the community, but, in many cases, outside vendors are contracted to provide specialized services, such as pest control, sprinkler and backflow inspections, and parking lot resurfacing. The maintenance supervisor will essentially serve as the project manager for the various capital projects that will occur on an annual basis, including carpet and furniture replacement.
To conclude, the management of student housing public-private partnerships by third-party managers, and universities alike, are essential for the success of all student housing projects. While there are key operational and contractual characteristics that will be the same at each location, each management arrangement is unique.
SCOTT M. HELFRICH, D.Ed. is currently the Director of Housing & Residential Programs at Millersville University and the pricipal owner of Helfrich Advisory Services, LLC. Dr. Helfrich is a nationally recognized thought leader on the management of student housing public-private partnerships. He served as a faculty member at the 2018 ACUHO-I Senior Housing Officers Institute in Pittsburgh, PA, presenting on the topic of P3s with Brailsford & Dunlavey. You can read more of Dr. Helfrich’s content at www.scottmhelfrich.com/blog.