On the rebound? Optimism for US higher education P3s is up, but closings are down

SAN DIEGO, CA – Optimism on a future P3 pipeline is high – over two dozen universities, colleges and public school systems explored the use of P3s this year, ranging from projects in the student housing area to campus edge development to school bus electrification.

In its recent report, 2023 Higher Education Public-Private Partnerships State of the Industry, advisory firm Brailsford & Dunlavey noted that only 10 higher education housing P3s closed in 2022 as compared to 21 closings the previous year. The firm also noted the average size of the deals decreased to $105m in 2022. This is significantly lower than the average deal size of $177m in 2021, but higher than the average of $87m in 2020.

“We were digging into the information, and a lot of this had to do with the echo effect of Covid,” stated Brad Noyes, who leads the higher education practice group at Brailsford & Dunlavey. 

“If you imagine that you had a lot of projects that would’ve been in the middle of Covid, and then by the time they got to closing, either they closed the prior year because people kept going, or they ceased to move forward. Therefore, you had very few procurements that were happening in this period about two years ago. So, I guess, no surprise, the question now will be how that rebounds.”

The report also cites the growth in private four-year universities exploring the P3 model as a trend to watch. The 10 deals which closed in 2022 were equally split between public and private institutions.

Additionally, the report observes that the financial structure of the deals changed in 2022, with 50% of the closed transactions utilizing university credit. In 2021, 21% of the deals used this structure, up from zero in 2020. Developer debt and equity remained relatively unchanged, with 20% of all deals utilizing this structure.

During his presentation, Noyes optimistically noted: “We will close more than 10 deals this year,” but believes it will require creativity, thoughtfulness and a “flight to quality” to get them over the finish line. 

He shared that the firm currently has $12.5bn worth of development in the pipeline on at least 55 initiatives. “We are very, very focused on how we make sure that the industry overall closes more transactions as a percentage. We need to land projects that can close and deliver outcomes.”

This is an excerpt from a subscription article originally posted by the P3 Bulletin. Read the full piece here.

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