The University of Kentucky is negotiating with a Memphis-based real estate company to take over its student housing by slowly rebuilding, then managing, all of UK's dorms.
Education Realty Trust could spend as much as $500 million during the next several years to tear down and rebuild most of UK's existing housing, with 6,000 beds, and build facilities with an additional 3,000 beds. The private company then would control and manage all residential areas of campus.
"We have an opportunity to move forward with a revitalization of the core of our campus as we seek to enhance an already wonderful undergraduate educational experience," UK President Eli Capilouto said Tuesday.
Phase one of the plan would result in a new 600-bed dorm on an athletic field near the William T. Young Library by fall 2013. The cost is supposed to be about $30 million, which has been approved by the General Assembly.
If the deal with Education Realty Trust, or EDR, is approved, the company would enter into a long-term ground lease with UK, then would finance, build and manage the new building, receiving all rent from students.
Phase two would include demolition, renovation and construction of dorms, leading to nearly 9,000 beds, probably the largest privatization of housing by a research university in the country.
Angie Martin, vice president for budget and finance at UK, said any deal with EDR would abide by prevailing wage laws during construction and would include continued employment of custodial staff. In addition, UK would maintain control over residential life — hiring advisors, making rules and deciding what types of students would live in specific dorms.
Tom Trubiana, executive vice president of EDR, said the company would not charge any development fees and would use only local workers for demolition and construction, including architects, contractors and subcontractors.
"It's very important that it be kept in the local economy, local architects," Trubiana said of the work. "In today's economy it's the right thing to do, and we've made that commitment."
EDR is a 50-year-old publicly traded company in Memphis that has built campus housing with more than 83,000 beds across the country, including 1,300 at the University of Louisville. It owns or manages 60 campus communities in 23 states.
"Across the country, as states and universities are struggling because of state deficits, they're looking more and more to the private sector to use their equity," Trubiana said. "To my knowledge, this potentially is the first of the Tier 1 institutions to look to the private sector at this magnitude."
Richard Norment, executive director of the National Council on Public-Private Partnerships in Arlington, Va., said private construction of dorms has been common on campuses for years.
"You don't ask a brain surgeon to change the carburetor in your car," Norment said. "Academicians are good at many things, but administering physical infrastructure is not their best forte. If you don't have to pay for the land, that knocks the cost down significantly. You take a company that specializes in academic housing, and they've got a methodology and procedure that's worked out."
The deal will require working out many details, Martin said, but "we're in a unique position because no one else has taken this approach. It comes down to affordability for us."
UK liked EDR's bid because it offered 100 percent equity upfront, which means no debt for the state or UK.
"We would basically use cash on hand, so there would be no debt specifically on the property," Trubiana said.
The UK Board of Trustees is expected to consider the phase one proposal at its February meeting. The financing of the larger deal would have to be approved by the General Assembly.
UK has roughly $1 billion in construction needs across campus, from dorms to classrooms to research space. UK's housing department has an annual budget of $30 million, but the cost of its deferred maintenance needs tops $200 million, Martin said.
In addition, Martin said, UK has talked to EDR about sustainable building techniques that would result in dorms that meet LEED specifications, the national benchmark for sustainable construction. Officials also have discussed the possibility of using geothermal techniques for heating and cooling.
Although negotiations with EDR continue, UK has not ruled out financing the new building itself.
Martin said that unless a contract with EDR could provide better housing and better rates for students, UK would not proceed.
Because EDR makes money from rent paid by students, it would be involved in setting the rents, but EDR officials said they would be comparable with rates in the local rental market.
"Our average annual increase in housing rates has been 6 percent every year, so we cannot really continue to this path in the future," Martin told trustees. "We want to find the best option that maintains affordability for our students and preserves the university's financial capacity.
The Board of Trustees did not discuss the potential contract at its meeting Tuesday. Afterward, several trustees said they liked the idea of handing construction and management of UK's student housing to a private company.
"Things like housing can be done better by people who are in the business," said trustee Billy Joe Miles, an Owensboro businessman.
Micah Fielden, the student representative on the board, said students had a simple perspective on the issue: "Students want to see the best facilities at the best cost," he said. "If that manifests itself in a private/public partnership, then so be it."
Board chairman Britt Brockman said he thinks the plan will get a thumbs-up from legislators, who have heard about the proposal from UK officials.
"We recognize also that we can't depend on the state for funding," Brockman said. "That led to this creativity. We're not just always coming in with a woe-is-me attitude."
UK Housing By the Numbers 6,000Beds on campus 9,000Future beds on campus $500 million Cost of replacing most existing dorms $200 million Cost of deferred maintenance on existing dorms $30 million UK's annual housing budget