Preserving the Neighborhood with Student Housing

Transcription

1 Preserving the Neighborhood with Student Housing Barry Bosley, AVP Administration Franklin & Marshall College Kevin Silverang, Silverang Hallowell Development Company, Developer

2 Franklin and Marshall College Established in 1879 Highly Selective Private Liberal Arts College Top 50, US News & World Report for National Liberal Arts Institutions Average SAT 1300

3 Franklin & Marshall College 175 Acres, 63 Buildings Located 1 hour west of Philadelphia and 1 hour north of Baltimore, south east PA. Population of the City of Lancaster is 56,500 Population of Lancaster County is 477,000 College is located in northwest corner of the city

4 Residential Requirement In 2005 F&M was only able to house 66% of our student population The Institution made the commitment to house 95% of the student population by the Fall 2010 The primary reason was to provide clean and safe housing for all students as well as protect/stabilize the surrounding neighborhood. Many upper class students living off campus with private landlords were in less than desirable & unsafe living conditions.

5 Underlying Reason for Housing Requirement The College had no contact with landlords and no control over student behavior in the neighborhoods. In 2005, our students lived in 142 different properties owned by 92 different landlords Neighbors made complaints about student behavior, noise and trash. College had no mechanism to address concerns or impose sanctions. The perceived cheap cost of housing caused by the city s lack of zoning enforcement was an issue that was addressed as well.

6 High Density Student Rental Neighborhood

7 Poorly Maintained and Unsafe Housing

8 Housing Solution Beginning Fall 2007 all students were required to live in College Approved Housing including student receiving waivers. Landlord requirements to participate Class of 2008 exempt from policy Three Private Partnerships were developed to provide the needed 750 beds 110 beds delivered in a renovated tobacco warehouse (Fall 2001) 393 Beds, new construction (Fall 2007) 240 beds, renovated residential properties (Fall 2008:165 beds Fall 2009: 75 Beds)

9 Preserving The Neighborhood The Fall of 2007, 393 students (Jrs.) were taken from private landlords properties in the neighborhood and moved into College Row the new housing option approved by the College. The exempt seniors still filled many of the rental units which kept the neighborhood stable. What would happen to the make up of the neighborhood in the Fall 2008 when the students were removed?

10 Preserving The Neighborhood The College was concerned that when the student market dried up the area landlords would be forced to lower the rental rates to attract a different type of tenant. The College still had a need for quality clean and safe beds. The challenge was to find a developer that was willing to purchase and renovate existing properties to College building standards.

11 Sample Economic Effect on Value Due to Removing Student Housing Enhanced Rent

12 Preserving The Neighborhood Developer Guidelines Only properties that have been historically student rentals could be purchased and brought into the program. Property must meet all City zoning ordinances All renovation plans must be approved and permitted by the City A Certificate of Occupancy must be obtained before College acceptance.

13 College Construction Standards (selected examples) The entire property must be sprinklered and approved by Fire Marshall at completion New HVAC systems, removal of oil tanks from property Upgrade electrical systems, remove fuses and knob and tube Life Safety Systems including pull stations, hard wired and third party monitoring of smoke, heat and CO sensors, emergency lighting

14 Win Win Win College: Independent living environment close to campus Students living in up dated and safe housing Students held to College Conduct Policies Neighborhood: Stabilization of neighborhood & increased property value College addresses students behavior issues Developer: Long term relationship with the College Master Lease enhances ability to finance Above market rate of return for investors

15 Before & After

16 Before & After

17 Before & After

18 Before & After

19 Award of Phase III Silverang Hallowell Development Company (SHDC) was selected to partner with the College to solve this student housing issue. Pro forma developed to test viability for both parties Legal documents developed and negotiated Construction standards agreed upon

20 Economic Model Assumptions Number of buildings to be potentially acquired 40 Period of time for acquisitions over 2 years Average acquisition price currently $30,000 per bed Average acquisition price per bed following placement of 400 students in on campus housing $26,000 ($164,000 per building) (anticipates 5% per annum price reduction over acquisition period) Average per bed retrofit costs $20,500 Average per building retrofit costs $130,000 Average per bed rental income $575 per month College Master Lease of 250 beds for 20 years Cap Rates assumed at 6.5% on stabilized income at year 5 and year 7 sale of portfolio Proposed minimum investor IRR over 5 year hold period 19%

21 Sources and Uses Assumptions 70% senior debt at 220 basis points over LIBOR (A&D loan with revolver for construction costs) 30% equity contribution split 50/50 (see alternative leverage models) 10% preference to cash investors Minimum 19% internal rate of return to cash investors 5 year investment hold period, 6.5% exit cap rate

22 Annual Cash Flows Low Levered Model

23 Returns & Reversion Low Levered Model

24 Economics to Developer $17,000,000 in capital required $14,000,000 financed through non recourse acquisition and construction loan at LIBOR and 220 BPS $3,000,000 raised through private equity syndication 10% cash on cash return to investors following portfolio stabilization 19% IRR to investors assuming exit after seventh year

25 Capital Lease Analysis/Concerns Master Lease will typically not be viewed as a liability by S&P This proposal does not meet any of the four capital lease tests (see next slides for capital lease tests) Master Lease will be structured as an operating lease Conclusion: Master Lease should have no negative effect on College s balance sheet

26 Capital Lease Tests The lease conveys ownership to lessee at end of term Not Applicable The lease grants lessee an option to purchase at end of term for a bargain price Not Applicable

27 Capital Lease Tests (Continued) The term of the lease is 75% or more of the economic useful life of the asset Term 20 years. Use life of assets post renovation and retrofit years. Computation shows this is not a factor The present value of the minimum lease payments equals or exceeds 90% of the fair value of the leased property Calculations show this is not a factor De Minimis Analysis from rating agencies

28 Lessons Learned Engage the Neighborhood early, earn their support Start the zoning and variance process with the City immediately Be strategic in requests for variances to limit City approvals and public input

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30 JSP Housing Detail Map ID Property Unit Number W. James 12 Bed Number Fall 2009 Utilities Est. cost is by unit. if not included in rent then shared equally between residents of each unit Price Semester Tier Charge Paid Furnished Gas Electric Cable TV Internet #1 1 E 4411/ E 4411/ C 4262/ A 4114/ Approx Appprox Approx Approx C 4262/3045 $90/mth $70/mth $50/mth $50/mth 6 Student divided divided divided D 4337/3098 Bill/Semester Yes equally equally equally 7 C 4262/3045 #1 1 D 4337/ W.James 2 C 4262/ C 4262/ N. Mary St. 4 D 4337/3098 #1 1 D 4337/ C 4262/3045 #2 3 D 4337/ C 4262/ C 4262/3045 Off Street Laundry Water/Se Included wer Trash Parking or fee Student Bill/Semester Yes Plus Plus Plus Plus Included Included No Included divided equally Included Included Included Student Bill/Semester Yes Plus Plus Plus Plus Included Included No Included Student Bill/Semester Yes Plus Plus Plus Plus Included Included Yes Included Approx Appprox Approx Approx $90/mth $70/mth $50/mth $50/mth 2 spaces divided divided divided divided equally equally equally equally

31 Cost Comparison Chart

32 Located in Radnor, Pennsylvania Specializes in acquisition and development or repositioning of infill properties It is SHDC s mission to engage in quality real estate projects which adaptively reuse existing infill locations in a manner which significantly improves the neighborhoods in which they are located, such that ratables are put back on municipal books, employment opportunities are created, failed or dilapidated projects are revived to become economically and esthetically successful adaptive reuses for the benefit of the community. SHDC strives to achieve that mission while at the same time providing vibrant opportunities for its community of investors.

33 It is SHDC s mission to engage in quality real estate projects which adaptively reuse existing infill locations in a manner which significantly improves the neighborhoods in which they are located, such that ratables are put back on municipal books, employment opportunities are created, failed or dilapidated projects are revived to become economically and esthetically successful adaptive reuses for the benefit of the community. SHDC strives to achieve that mission while at the same time providing vibrant opportunities for its community of investors.

34 Bios BARRY L. BOSLEY, Associate Vice President for Administration, has served in that capacity since September 2003 at Franklin and Marshall College. During his tenure at F&M he has orchestrated the College Row and SHDC housing, private developer projects. These projects represent 640 student beds and 50,000 ft 2 of retail space. He also serves as the primary contact for all third party contracts on campus. From 1985 to 2003, he served as the Director of Facilities Management and Auxiliary Services at McDaniel College (formerly Western Maryland College). In addition, he served as Vice President of WMC Development Corporation from 1990 through This Corporation is the for profit entity established by McDaniel College to develop 34 commercial acres located just west of the campus. Mr. Bosley was instrumental in the development and operations of a 101 room hotel, conference center and restaurant, and a 10 acre shopping center complex. Mr. Bosley received a B.S in Biology from Salisbury University in 1976 and his M.S. in Environmental Science at Hood College in He is a member of the Eastern Association of College and University Business Officers and the National Association of College Auxiliary Services.

35 Bios Kevin Silverang Kevin Silverang is a principal and founding partner of Silverang Hallowell Development Company, LLC. A development company specializing in acquiring and developing value added real estate. Mr. Silverang is an entrepreneur who has personally developed over $50 million of property and cofounded two multi million dollar real estate equity funds. Prior to formation of Silverang Hallowell, he served as Executive Vice President and General Counsel of O Neill Properties Group where he oversaw a portfolio of real estate with a retail value of over $4 billion. Prior to joining O Neill Properties group, Mr. Silverang served as Managing Partner of law firm Buchanan Ingersoll s Philadelphia office. Vice Chairman of the firm s real estate and banking practice, and a member of the executing committee of board of directors. His team at Buchanan Ingersoll handled more than $500 million of transactions from for clients, including real estate developers and invenstors, banks, and corporations. Mr. Silverang hold a Bachelor of Arts degree from Franklin and Marshall College, and obtained his law degree, cum laude, from Villanova University. He is a frequent lecturer on real estate subjects at seminars sponsored by the Philadelphia Bar Association and the Pennsylvania Bar Institute.