Quality student accommodation is an important factor in attracting and retaining both local and international students at tertiary institutions in Australia.
Students are now seeking accommodation facilities which offer not only affordable and quality accommodation, but also complementary ancillary services.
What Is A PPP?
A Public Private Partnership (PPP) is a project structure which involves the use of private sector capital and expertise to deliver much-needed public sector infrastructure assets and services.
PPPs allow public sector bodies to focus energy and resources on the provision of core services, by contracting out non-core services to the private sector.
University student accommodation PPPs are usually undertaken in the form of a Build Own Operate Transfer scheme (BOOT). This involves the university licensing the relevant land to the private sector, who will finance and build the accommodation facility and lease the land to the private sector to operate the facility for a specified period, usually between 25 – 35 years. At the conclusion of the specified period, the accommodation facility is transferred back to the university, usually at nil consideration.
The PPP model is designed to allow procurement, maintenance and operation of the accommodation at minimum expense and management responsibility to the university, with the majority of risk transferred to the private sector.
Although a point of contention on older projects, in most current student accommodation PPPs the private sector will retain rental payments collected from the residents, whilst at the same time taking the risk of occupancy levels.
Attraction To The PPP Model
Improved Service Delivery
Private sector service providers, who focus on and specialise in the provision of student accommodation services, are now established in the Australian market. The involvement of these service providers and application of their expertise in student accommodation projects, results in the delivery of innovative services which are tailored to, and reflective of students' needs. This includes developed skills in the provision of a range of pastoral care services.
Residual Value
Predominantly, the university will want to retain long-term ownership of the accommodation facilities, particularly where the facilities are located on campus. Under a BOOT scheme, the accommodation facilities will be transferred back to the university, in a pre-agreed hand back condition, at the expiration of the specified period. The pre-agreed hand back condition will be such that the facility is capable of continued operation for an agreed further term without significant further short-term capital investment by the university. The transfer of the facilities to the university will usually be at no cost.
Whole-Of-Life Approach
The private sector will be responsible for the provision of all maintenance and operation services necessary for the efficient running and upkeep of the facility to the university's requirements over the specified period. Under this model, all obligations and responsibilities in relation to the maintenance of the accommodation facility, including funding and management, are transferred to the private sector.
Risk Management
The essence of a PPP arrangement is the allocation of risks to those parties who are best able to manage those risks.
The use of a PPP to deliver a student accommodation project will, when structured correctly, enable the university to avoid or minimise its exposure to a number of risks which are best managed by the private sector. These include construction, operational and facilities management risks associated with the facility, and also occupancy and demand risk for the new accommodation.
Other Benefits Of The PPP Model
Other key benefits arising from the use of a PPP model for student accommodation facilities include:
- strategic assessment and potential acceleration of required facilities coming on line for the university – the university can undertake a far more substantial and timely development than might otherwise be managed or financed;
- utilisation of private sector expertise and innovation to achieve a possible solution which optimises the value of existing facilities and land to the university;
- significant improvement to the on-time and on-budget delivery of facilities as the financing risk/cost falls to the private sector and delays in the facility coming on line directly impact on the private sector's ability to repay the financing;
- ability to wrap up existing accommodation facilities for management under one project thereby allowing the university to transfer 'non-core' assets/services to the private sector and either have these revert back at the end of the term or alternatively permanently dispose of 'off-campus' properties; and
- robust private sector players in this market (around four or five) with good experience on other similar university projects.
University Considerations
Facility Objectives
The private sector will be responsible for the detailed design and delivery of the accommodation project, having regard to the university's minimum functional requirements and facility objectives. These requirements and objectives will be set by the university after detailed consideration is given to the current and future functions of the accommodation facility and to any other facility requirements.
Structuring and design of the project will need to be carefully considered by the private sector to ensure that it meets the set output specifications and provides the required student support services and accommodation at a rental price that ensures demand for the accommodation.
University Planning
The university will be primarily responsible for obtaining all internal approvals and managing stakeholder issues in relation to the project.
The private sector will ordinarily be responsible for obtaining all approvals (including planning) from third parties that are required in relation to the project, however the university will need to consider the extent (if any) to which they wish to be involved in the approvals process.
Consideration will also need to be given by the university to its level of involvement in the assessment of the acceptability and fit of the accommodation facility with any campus master plan.
Tender Process And Documentation
The tender process and documentation is crucial for maintaining competitive tension to ensure that the optimal commercial outcome for the university is achieved. Equally, it allows the university to properly evaluate the true commercial and legal position of each private sector bidder.
The tender process should provide clear guidance to the private sector on the university's requirements for the project, including its preferred commercial and risk allocation.
Amongst other things, guidance should be provided by the university on:
- the evaluation of the project and its proposed management;
- the interface between the university and private sector on marketing of the accommodation and performance evaluation; and
- the evaluation of proposed rents and quality of the accommodation.
Risk Management
Proper allocation of risk to the private sector is crucial to the success of the project. Documentation of the project should allocate risks properly between the private party and the university, with a view to minimising, to the extent possible, the risks to the university.
Student Accommodation PPP Experience
Minter Ellison has successfully advised, and continues to advise, on a number of student accommodation PPPs around the country including:
- Sydney University
- University of New South Wales
- University of Canberra
- University of Technology, Sydney
- Southern Cross University
- Bond University
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.