by Greg Wachalski
Planning and assessment are standard practices in higher education. In student housing, those practices apply to both residential life and facility issues where various tools are used to measure satisfaction, improve the student experience, and ultimately lead to better retention and persistence rates. With respect to facility issues, master plans and feasibility studies are performed to define long-term facility approaches as they relate to student demographics, land use, and other key considerations.
This type of work may sound daunting, but it doesn’t have to be. Higher education institutions have a wealth of information and years’ worth of data trends in their possession. Many times, analyzing these reference points can lead to logical conclusions, but if the information is not used in an optimal way, mistakes can be made. Consider, for example, historical data on occupancy and enrollment. Generally, strong enrollment translates into high occupancy of housing, especially if a residency requirement is in place. That correlation doesn’t always work that way, though. For example, a market without a live-on requirement, perceived or real overpricing, or poor facility condition can translate into higher vacancies.
Then there are cases where external factors can affect trends and past history is no longer a reliable predictor of future results. One dramatic example may be the so-called enrollment cliff on higher education’s horizon. Due to lower birth rates between 2008 and 2011, following the 2008 recession, a sharp decline in college and university enrollment is anticipated between 2025 and 2029, followed by more decline, although less severe, over the next five years. While the crisis won’t affect all institutions across the country equally (the Midwest and northeastern states are expected to be the hardest hit) and there are forces that may soften the impact, it is prudent to develop what-if scenarios to anticipate the impact of potential depletion of the target market. What factors can campus housing departments study to help them set their course as they prepare for these changes?
One of the first places for a college or university housing department to begin its assessment process is the off-campus housing market. Many universities regularly keep track of the private-sector housing market surrounding their campuses and collect data on the current supply of beds, pricing, marketing strategies, and the future development pipeline. Current supply and pricing will influence the position of on-campus beds that compete directly with the private sector. Keeping track of the data, especially in markets with robust off-campus supply, is critical. Furthermore, the development pipeline cannot be ignored. Institutions should maintain good relationships with local planning departments to track activity related to student housing and other residential properties. When a large property appears on the market, it may alter the balance between demand and supply and impact occupancy both on and off campus. In addition, understanding the marketing strategies of the off-campus landlords, including the timing of targeted advertising, is key. There are many markets in which leasing starts within a few weeks of the beginning of the academic year. This leads to many students committing early to off-campus leases, thus shrinking the pool of potential on-campus returners.
Whether in-house or outsourced, assessment and planning are important aspects of efficient housing operations. They lead to improvements in facility conditions and functionality, ultimately translating into the enhanced viability of a residential program.
Other information to consider is peer data, which plays a role in the competitive landscape with respect to housing offerings and the broader student experience package. Many colleges and universities gather data on their peers about the size of their housing programs, unit types, and pricing. Benchmarking leads to better market positioning – an important element of today’s competition for students from campus to campus. The rising cost of higher education, and specifically the cost of room and board, is critical to prospective students’ selection of a school.
All the information needed for assessment, as discussed above, is relatively easy to collect internally and could become the basis of a department’s solid plan. Residential life departments should, however, evaluate their internal resources and ask themselves whether they have enough time and the right personnel profile to do this type of work. If the answer is positive, an ongoing, systematic in-house market evaluation should be considered. Otherwise, a periodic market check performed by an outside consultant may be a better idea.
During the planning process, quantitative tools, such as a student survey, can also be utilized. If designed and implemented correctly, the survey can produce much valuable data. The data ranges from student satisfaction with various aspects of on-campus living or individual residence hall perceptions to information about the off-campus market (where students live, how much they pay, what drives them off campus). In addition, surveys can produce data on housing unit demand that could be used in decisions about the size and programming of contemplated projects. When using the data for that purpose, it is important to ensure that the survey respondents have the opportunity to reconcile cost and value. This can be done by displaying potential unit types (value) associated with price points (cost).
Those analyzing the quantitative data should know that surveys often produce an overly optimistic profile of housing demand. Therefore, it is critical to use various demographic and affordability-related filters to correctly assess the potential interest in housing. This process is often more art than science, and it takes a lot of experience to do it correctly.
Lastly, financial modeling is a critical aspect of every assessment. It is the ultimate test of a project’s feasibility and helps shape the program, budgets, and rental rates. Modeling can be done on either a system-wide (housing system) or a stand-alone basis. The second approach is used when an off-balance sheet (a public-private partnership) transaction is considered. System-wide modeling can also be done within a housing department. Modeling of a public-private project is a greater challenge as it requires in-depth knowledge of the current transaction types and underwriting criteria. Campuses may choose to outsource the financial modeling process, but that does not mean they are absolved of the outcomes. Housing departments should remain closely involved throughout the process as they are the best resource to share the operational and budgeting realities of the campus.
To summarize, it is a good policy in housing programs to maintain a certain level of internal assessment, especially with respect to a shorter (one to three years) planning horizon. The demographic data, combined with off-campus and peer statistics, will provide a good reference point for making tactical decisions. When it comes to long-term strategic initiatives where the utilization of student surveys, demand projections, and sophisticated financial modeling is required, outsourcing should be considered. Another factor driving the decision on who should be performing a study is what generates the need for the planning effort. Internal needs may warrant a simple in-house effort. When the need comes from the governing board or an outside party such as bond investors, engaging a consultant may be advisable or even required.
Financial modeling is a critical aspect of every assessment. It is the ultimate test of a project’s feasibility and helps shape the program, budgets, and rental rates.
Whether in-house or outsourced, assessment and planning are important aspects of efficient housing operations. They lead to improvements in facility conditions and functionality, ultimately translating into the enhanced viability of a residential program. Now is an optimal time to take a close look at the future of enrollment at the institution and realistically align the housing strategy with the demographic realities. If enrollment grows, future projects should be carefully considered to make sure that additional beds serve the strategic goals, as opposed to becoming unnecessary risks. Institutional leadership should deliberately contemplate unit types, rental rates, and the quantity of beds. In addition, the issues of balance sheet capacity and credit rating need to be factored in when key decisions are made.
Faced with potential student population fluctuations, institutions should consider a few strategies. If the enrollment is flat or projected to decline, it is likely to impact housing and the institution overall from the financial perspective. This presents an opportunity to re-evaluate the size of the housing program in the context of other factors such as functionality and the physical condition of buildings. With strong enrollment, even the older buildings with limited privacy and community space may have been leased. However, over the years, they may have accumulated deferred maintenance issues. The logical step would then be to evaluate, either internally or with outside assistance, the functional and physical viability of these structures. Renovations could lead to reductions in bed counts which could help with the overall re-sizing of a housing program. However, the capital costs of the renovations will have to be absorbed by fewer residents, which may pose a challenge. On the other hand, when done right, renovations could lower operating expenses due to new and more efficient building systems. The strategy to consider may be taking some buildings offline. Many factors influence a decision to demolish or repurpose a residence hall. The emotional attachment that administrators, former residents, and alumni have to the building is often a key factor, among others. Closing buildings temporarily may seem like a perfect solution, but the structures will deteriorate quickly if not properly maintained while being unoccupied. Those potential liabilities may be very expensive to turn back into assets in the future when more beds are needed.
While there is no silver bullet solution that will work on all campuses, an evaluation process will always be useful. Many campuses are undergoing master-planning efforts to make sure that the physical plant responds to the greater strategic objectives and enrollment realities. Housing representatives should be at the table when critical university-wide decisions are made. Residence halls and other student life facilities will continue to help attract and retain students, and residential life operations will remain critical to the success of an institution, regardless of the future enrollment.
Greg Wachalski is a founder and principal of Wachalski Advisory, a real estate consulting practice providing a wide range of capital planning and project implementation services to higher education institutions across the United States. gregw@wachalski.com
