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A capital idea: Blending strategy and opportunity to manage College assets

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As American colleges and universities emerge weaker but wiser from the Great Recession, it is also time to think about how best to move forward with capital projects long delayed or shelved.

What, then, are the preconditions determining which projects go forward? What seemed to be an essential capital expenditure five years ago may not be as prudent and necessary a move this year. The projects on American campuses that are scaled back, abandoned because of cost considerations, or mixed into other strategic purposes outweigh those that emerged unchanged from the combined effect of net tuition revenue declines, sector bond downgrades, the drying up of capital, and endowment performance.

Further, the world has changed in the past five years. Outside factors like consumer demand, technology needs, the debate over sticker price, the use of blended technology, and basic operating efficiencies directly impact new and existing capital project design. Building is only part of construction. College administrators must also pay utilities, additional labor costs, recurring technology upgrades, program enhancements, heightened demands for LEEDS-certified and green construction, and depreciate new buildings. The construction price must never be confused with the total cost of construction to the institution’s bottom line.

Yet colleges and universities are living, growing and dynamic places. The best institutions seek constant improvement, linked to a strategic plan that employs facilities to meet the plan’s goals and the college community’s aspirations. The plan represents and defines a college culture. It is often said that prospective applicants “know it when they feel it.”

While some students cannot get past the mud and inconvenience of new construction, a building program is also a powerful, visual statement of institutional confidence and determination. During a visit, you can sense which colleges have a plan and are prepared to act on it. Facilities construction and repurposing are tangible proof of a college’s ability to make words come alive that otherwise are lost somewhere on the pages of the glossy brochures with which prospective applicants have been inundated.

Thinking about facilities construction or redesign today is ultimately an exercise in opportunity. To access these opportunities, however, American higher education leadership must think differently about how their construction program is put together.

At least three factors shape this thinking: strategy, purpose, and control.

The best strategic plans look at the full range of college assets. They are also broader visions that speak to the relationship of the college to its environment. These plans see connections between ambition, need, planning, politics and opportunity.

Can space be freed up by transferring college assets – museums, student housing, theatre, sports venues, business incubators, bookstores, and back office administrative operations – into a town? Can a college simultaneously concentrate its campus resources, particularly its remaining debt capacity, on the academic program while contributing to the vitality of its region? Can it turn college assets into community opportunities that also address tax pressures, shape campus boundaries, link town and gown, and illuminate the institution as a community resource?

Purpose is the toughest nut to crack. In post-recessionary America, how should colleges and universities use their bond capacity? Does it still make sense to use bonds, fundraising proceeds, and operational surpluses to finance all types of construction? Or, alternatively, are there certain mixes of programs and facilities that lend themselves to third party financing and development freeing these sources for other uses, including funding depreciation and endowment growth?

The examples are numerous. When student services control the relationship developed in a residential learning experience, for example, they do so increasingly through a stated or implied social contract with the student. If this social contract determines the relationship between the student and the institution, is it still really necessary to control the building? In instances with students where off campus upper division policies predominate, is it possible to improve the recommended range of housing off campus without incurring added up front costs to the institution? Can a college blend this housing into a more vibrant, revenue- and tax-producing campus edge or downtown that influences consumer appeal in admissions?

The issue of control ultimately becomes a test of leadership. It is always easiest to abandon the notion of cooperative partnerships to maintain the full control that historically defines the chain of command at most colleges. It’s less paperwork. Facilities directors make impassioned and often quite silly claims about how developers in partnership cannot build to the institution’s high construction standards. CFO’s and legal counsel argue that bonds can get the project done more cheaply.

In the end, these arguments can be distilled simply to “we’ve never done it this way before.” Higher education leadership –especially at the board and presidential level – must be prepared to respond.

To begin, senior leadership must define the partnership carefully, putting into it all of the language and safeguards necessary to assure construction timing and standards. Most college facilities are built to a 30-50 year lifetime cycle at best. It’s not quite as difficult as building the pyramids, even if presented that way. And sometimes preserving bond capacity to advance the academic program can be more important than the slightly lower potential cost associated with a bond repayment.

Ultimately, the decision to use collaborative partnerships with outside financing and developers is a mix of strategy, force of will, and money. The time has come to examine development partnerships as an opportunity to move forward as the deep recession eases.

There’s room under the tent for everyone, even if the college ends up owning the program but not the tent.

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3 comments

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