Fall 2005

University of LouisvilleStudent Housing Business Plan Presentation

Market AnalysisOperations ReviewImplementation Plan

University of LouisvilleMarket Analysis

BenchmarkingStudent SurveyDemand Projections

3

Market Analysis

Benchmarking Profile of Off-Campus Properties

Sample Size: 22 properties located within 15 miles of campus

Property Size: 42 to 689 units; median 208 units Leases: All offer 12-month leases; majority offer

6- or 9-month leases (most for an additional charge)

Security deposits: $0 to $450 Occupancy: 77% to 100%; median 92%

4

Market Analysis

Benchmarking Off-Campus Rents by Unit Type

$565

$890 $930 $1

,080

$460

$459 $5

62

$779

$390

$345

$369

$550

Efficiency

(n=6)

1 Bedroom

(n=20)

2 Bedroom

(n=21)

3 Bedroom

(n=8)

High

Median

Low

5

Market Analysis

Benchmarking Peer Institutions

SUNY at Buffalo University of Cincinnati University of Illinois – Chicago University of Kentucky – Lexington University of Memphis University of Missouri – Columbia University of Nevada – Reno University of Pittsburgh University of South Florida Wayne State University

6

Market Analysis

Benchmarking Peers: Beds/Units as a % of Enrollment

Median: 12%65%

25%

23%

23%

12%

12%

12%

12%

10%

9%

7%

SUNY at Buffalo

University of Pittsburgh

University of Kentucky-Lexington

University of Missouri-Columbia

University of Memphis

University of Illinois-Chicago

University of Louisville

University of Nevada-Reno

University of Cincinnati

University of South Florida

Wayne State University

18%University of Louisville Proposed

7

Market Analysis

Benchmarking Peers: Fall 2004 Occupancy

Median: 98.5%

100%

100%

99%

99%

98%

97%

93%

82%


SUNY at Buffalo







8

Market Analysis

Benchmarking Peers: Room Rate Traditional Double

Median: $3,800

$4,790

$4,680

$4,636

$4,510

$4,190

$3,400

$3,363

$3,168

$3,108

$2,620



SUNY at Buffalo








$4,600University of Louisville Proposed

9

Market Analysis

Benchmarking Peers: Room Rate Suite Double

Median: $4,636

$5,290

$5,210

$5,138

$4,790

$4,750

$4,636

$4,280

$4,250

$3,777

$3,108

$2,912






SUNY at Buffalo

Wayne State University





$5,140University of Louisville Proposed

10

Market Analysis

Student Survey Off-Campus Housing Costs Per Person

Single Students

$425

$300$250 $250

$144

$117

$100 $102

$569

$417

$350 $352

One Bedroom

(n=45)

Two Bedroom

(n=93)

Three Bedroom

(n=47)

Four Bedroom

(n=23)

Utilities

Rent

11

Market Analysis

Student Survey Off-Campus Housing Costs Per Unit

Married/Family Students

$450 $525$625

$175$160

$245$625

$685

$870

One Bedroom

(n=16)

Two Bedroom

(n=38)

Three Bedroom

(n=11)

Utilities

Rent

12

Market Analysis

Student Survey Median Price Per Unit Comparison With

Market Rents

Students are generally renting at or below the median price in the market

Married/family students generally seek lower cost housing than single student who share the rent

ASL Market Sample $460 $459 $562 $779

Single Student Survey Respondents $392 $425 $600 $750

Married/ Family Survey Respondents - $450 $525 $625

EfficiencyOne

BedroomTwo

BedroomThree

BedroomMarket

13

Market Analysis

Student Survey Unit Types and Rents Tested in the Survey

Renovated Traditional Double

Full renovation that includes new furniture, new wall and floor finishes, replacement of heating and cooling, plumbing, electrical systems, and new windows so that the hall is like

when it was first built

$3,920 $436

Improved Traditional Double

Full renovation as described above plus more private and less crowded bathrooms, new study/ lounge areas, expanded public

areas including kitchens, laundries, and meeting rooms, improved in-room temperature control, and new acoustically

insulated windows

$4,600 $511

New Semi-Suite DoubleNew construction, two double rooms sharing a semi-private

bath (similar to Kurz Hall)$5,140 $571

New Semi-Suite SingleNew construction, two single rooms sharing a semi-private

bath (similar to Kurz Hall)$5,860 $651

DescriptionTested AY Rent

Monthly EquivalentUnit Type

14

Market Analysis

Student Survey Most Important Factors Respondents

Considered in their Housing Decision

0 500 1000 1500 2000 2500

Availability of parking

Ability to meet other students/social atmosphere

Physical condition of the housing

Freedom from rules and regulations

Security

Have own bedroom

Have personal space/privacy

Adequate living space

Proximity to campus facilities and services

Affordable cost

Weighted Scale

OverallOn CampusOff Campus

15

Market Analysis

Student Survey Interest in Proposed Housing

45%

18%

37%

20%

26%

57%

18%

15%

9%

9%

41%

On Campus Off Campus Total

Would not have livedthere.

Probably would not havelived there (less than a50/ 50 chance).

Might have lived there(50/ 50 chance).

Definitely would havelived there.

16

Market Analysis

Student Survey Reasons for Lack of Interest in Proposed

Housing

0 100 200 300 400 500 600

Prefer University Tower or Medical/Dental Apartments

Prefer Louisville Hall

Prefer existing traditional campus housing

I already own a home

Prefer Bettie Johnson Hall

I live with my spouse and/or children

I do not want to move

Concerned about the level of rules & regulations

I live with my parents/relatives

Prefer to rent off campus

The housing is too expensive

Number of Respondents

Off Campus

On Campus

17

Market Analysis

Demand Projections Off-Campus Student Demand – Fall 2004

Overall, 7.5% of current off-campus residents “would” or “might” be interested in the proposed housing

Significant percentage of off-campus freshmen interested

ClassCapture

Rate50%

ClosureCapture

Rate25%

Closure

Freshmen 2,167 8% 82 30% 164 245

Sophomores 1,884 2% 22 17% 79 101

Juniors 2,120 5% 48 21% 114 161Seniors 2,285 3% 36 17% 98 134

8,456 187 454 641

Full-timeOff-Campus Enrollment

Projected Demand

Definitely InterestedMight Be Interested

18

Market Analysis

Demand Projections On-Campus Student Demand – Fall 2004

Overall, 32% of current on-campus residents “would” or “might” be interested in the proposed housing

Lower-division students most interested

ClassCapture

Rate50%

ClosureCapture

Rate25%

Closure

Freshmen 1,550 50% 389 35% 135 524

Sophomores 604 45% 135 35% 53 187

Juniors 164 30% 24 53% 22 46Seniors 68 33% 11 33% 6 17

2,386 560 215 775

Full-timeOn-Campus Enrollment

Projected Demand

Definitely InterestedMight Be Interested

19

Market Analysis

Demand Projections Total Demand by Unit Preference – Fall 2004

Demand at higher rents for renovated traditional halls and new semi-suites still exceeds the proposed supply of 1,033 beds

Renovated Traditional Double $3,920 18% 117 20% 158 274

Improved Traditional Double $4,600 30% 194 42% 323 517

New Semi-Suite Double $5,140 20% 127 19% 149 276New Semi-Suite Single $5,860 32% 204 19% 144 348

Total 100% 641 100% 775 1,416

Preference Demand

Total Projected Demand

2004 Rent Per Student

Per AY Unit TypeOff-Campus Students Preference Demand

On-Campus Students

University of LouisvilleOperations Analysis

Progress Report Challenges and Opportunities Visioning the Future

21

Operations Review

Overview Four Aggressive Years of Growth and

Improvements Challenges and Opportunities Remaining

Major issues and recommendations for University Leadership

Major Issues and recommendations for Housing and Residence Life

Visioning the Future

22

Operations Review

Progress Report Four Years of Growth and Improvement

General fund subsidy has been eliminated from the housing budget

Student housing capacity has doubled in four years from 9% to over 18% of fulltime undergraduate students

ULP surpluses have been used, in part, to expand renovations in traditional U of L residence halls

23

Operations Review

Progress Report …More Improvements

Housing license cancellation policies and penalties have been strengthened to reduce mid year vacancies and improved spring occupancy by 2-3 % annually.

Space renovated in Threlkeld for the Etscorn Honors Center

Publications and marketing efforts have been enhanced considerably

Policy review has been completed with policy adaptations for enhanced student service have been implemented

24

Operations Review

Progress Report … And Even More Improvements…

Strengthened overall residence hall security and fire safety program with access control and sprinkler systems

House calls and Facility Assistant visits implemented in each hall

Enhanced First Year Experience for students in residence halls through personal calls before fall semester, meetings with first year students (MPACT), roommate contracts, and several other initiatives

25

Operations Review

Challenges and Opportunities Recommendations for University Leadership

Effect the coordinated marketing and management of UofL Housing with ULP

For a specified period of years consistent the housing master plan, re-direct general fund overhead charges and housing budget surpluses directly to the residential capital projects

26

Operations Review


Effect the coordinated marketing and management of UofL Housing with ULP

For a specified period of years consistent the housing master plan, re-direct general fund overhead charges and housing budget surpluses directly to the residential capital projects

27

Operations Review


Delegate to the Housing and Residence Life management team the decisions of where students should be assigned based on market forces and educational needs.

Develop a plan to eliminate the requirement that upper class students living on campus must purchase a meal plan

28

Operations Review


Appoint a task force of faculty and student affairs and housing staff to develop a strategic plan for an expanded focus on residential learning

Provide appropriate educational funds to support the residential learning initiatives needed to support recruitment and retention of students

29

Operations Review

Challenges and Opportunities Housing and Residence Life

How can the residential facilities and the on campus experience support recruitment and retention of students?

Can we guarantee housing to all first year students? What is the primary focus of the educational experience in

residence life? Developing business practices that enable full tracking of all

fiscal issues while allowing reduction in operating costs Adapting practices where appropriate from the Allen &

O’Hara management and marketing model

30

Operations Review

Challenges and Opportunities Recommendations for Housing Leadership

Develop a plan, in collaboration with enrollment management, to guarantee all first year students who apply by May 1st each year (and thereafter as well)

Identify market niches and marketing strategies to increase overall fall occupancy by 2-3% within three years

31

Operations Review


Establish first year residence halls so that front-loaded student support can efficiently enhance their retention to the sophomore year

Centralize residence education and student services around a simplified and focused residential experience to enhance the success of first year and other residential students

32

Operations Review


Reduce operating expenses through re-organization, more clearly focused student academic success activities, and re-engineered business practices

Develop a business model scenario applying the ULP operations structure to UofL Housing to clearly identify the added operating expenses of the current H&RL budget

Analyze the differences to determine if the added expenses are justified by student outcomes in terms of recruitment or retention

33

Operations Review

Visioning the Future A Vision for the Cardinal’s Residential

Experience The educational experience of living on campus is

recognized and valued Aggressively funded capital investments transform the

traditional residence halls into engaged learning environments with comfortable and secure accommodations

The recruitment of next generation students is enhanced by the quality residential facilities and programs at the University of Louisville

University of LouisvilleImplementation Plan

Scope Financial Plan Summary Recommendations

35

Implementation Plan

Scope On-Campus Facilities

Operations: All existing halls Capital Improvements: Residential master plan

projects; others deferred ULP Beds

Bettie Johnson, Kurz, and Campus Commons not in financial model

Project surpluses source of revenue only Merger of management systems to be determined

36

Implementation Plan

Scope ULP Merger/Acquisition

Ownership to remain with ULH No financial benefit to University ownership Risk of financial default should remain with ULH Improving net available cash flow to University Additional debt service not advisable in wake of $50

million in new debt for residential master plan Management

Short-term: Process re-engineering to approach vision Long-term: Realignment to single point of control

within University to achieve vision

37

Implementation Plan

Financial Plan Challenges and Constraints

Rental rates are low High operating costs per bed Ongoing renewal and replacement Existing debt service Low reserve balance

Outcome: Minimal debt capacity exists to fund renovations and quality construction

38

Implementation Plan

Financial Plan Creating Debt Capacity

Increase rents faster than operating costs Charge rental premiums for comprehensive

renovations and new construction Trim operating costs and non-operating transfers Minimize capital expenses

Outcome: Increased cash flow that can be leveraged to fund capital improvements

39

Implementation Plan

Financial Plan Revenue Assumptions

6% annual escalation through FY2009 all beds 45% premium in year following project completion 95% post-completion occupancy

Operating Cost Assumptions Current operating results as baseline 3% annual inflation (i.e., 3% less than rents) 10% reduction in year following completion

40

Implementation Plan

Financial Plan Capital Improvements

Capital Expenses 25% of annual surplus, if available

Construction Costs Based on input from planning team $160 per gross square foot for new construction

Development Budgets Include FF&E, design fees, development costs,

contingency, and financing costs Average markup 33% of construction costs

41

Implementation Plan

Financial Plan Financing and Reserves (New/Reno)

Bond coupon rate 5.5% 5.0% Term 30 yrs 20 yrs Earnings on reserves 2.5% Reserves

Balance of $1.0 million assumed as of 7/1/2005 Operating surpluses are transferred to reserves Operating deficits are funded from reserves Provide backup debt service coverage

42

Implementation Plan

Financial Plan Summary

ProjectProjectType

Revenue Beds/Units

Development Budget

Scheduled Completion

49A: West Hall Vacate 0 - Aug-2006

49B: Center Hall Vacate 0 - Aug-2006

49C: Wellness Hall Vacate 0 - Aug-2006

New Commons Phase 1 New Construction 250 14,309,000 Aug-2007

Threlkeld Hall Renovation 241 9,467,000 Aug-2008

New Commons Phase 2 New Construction 250 14,733,000 Aug-2008

Stevenson Hall Vacate 0 - Aug-2009

Miller Hall Renovation 292 11,830,000 Aug-2009

Unitas Towers Deferred 298 -

University Tower Apts Deferred 100 -

Medical Dental Complex Deferred 100 -

Louisville Hall Deferred 209 -

1,740 50,339,000$

43

Implementation Plan

Financial Plan Bed Distribution

0

500

1,000

1,500

2,000

2,500

3,000

3,500

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

ULP BedsSingleDoubleTripleQuad

44

Implementation Plan

Financial Plan Operating Budget

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Net RevenueOperating CostNet Operating Income

45

Implementation Plan

Financial Plan Debt Service Coverage

0.80

1.00

1.20

1.40

1.60

1.80

2.00

2.20

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Target Min. Coverage

Debt Service Coverage

46

Implementation Plan

Financial Plan Reserves

($5,000)

$0

$5,000

$10,000

$15,000

$20,000

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Restricted for Debt CoverageUnrestricted FundsTransfer To (From) Reserves

47

Implementation Plan

Summary Recommendations Establish advisory team to oversee the Plan Collaborate with Academic Affairs to establish

living/learning environments Formalize inter-departmental business processes and

agreements in support of full auxiliary status Seek operational and programmatic efficiencies to

reduce operating costs Implement phased facilities renewal plan Move oversight and control of ULP management to

Residence Administration

48

Extra Slides Follow

49

Implementation Plan

ULP Analysis Key Provisions of Partnership Structure

Annual Rent Equal to the Net Available Cash Flow Revenues less operating expenses, debt service,

management fee (6%), and deposits to reserves

Debt is non-recourse to the University Purchase Option

Purchase price equal to outstanding principal balance Lessor responsible for loan recording fees and transfer

taxes

50

Implementation Plan

ULP Analysis Ground Rent Received

Through FY2003, University reports $337,623 revenues received

For FY 2004, ULP financial statements report ground lease expenses (payments?) Bettie Johnson Hall $531,172 Kurz Hall $435,494

Though less than projected because of early tenant issues, the properties now have the potential to return projected cash flow

51

Implementation Plan

ULP Analysis Purchase Option for Bettie Johnson Hall

ULP Debt Outstanding principal balance$23,485,000 Annual debt service $1,365,000

University annual debt service on refinancing $1,706,000 at 6.0% TIC $1,528,000 at 5.0% TIC $1,358,000 at 4.0% TIC

52

Implementation Plan

ULP Analysis BJH Outstanding Balance and Refinancing

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

Pri

ncip

al

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

An

nu

al P

+I

Series 2001 Pincipal

P+I at 4% Refi RateP+I at 5% Refi Rate

P+I at 6% Refi Rate

53

Implementation Plan

ULP Analysis BJH Breakeven Analysis of Purchase

Estimated revenue for FY2005$2,600,000

UL operating expense budget for FY2006 is $2,995/bed or $10.43/gsf

4% TIC 5% TIC 6% TIC

Estimated Revenues 2,600,000$ 2,600,000$ 2,600,000$

Less: Debt Service (1,358,000)$ (1,528,000)$ (1,706,000)$

Operating Cost Allowance 1,242,000$ 1,072,000$ 894,000$

Cost per Bed 490 beds $2,535 $2,188 $1,824

Cost per GSF 175,277 gsf $7.09 $6.12 $5.10

54

Implementation Plan

ULP Analysis Conclusions

Housing will have difficulty operating within a cost structure necessary to breakeven

Current ground lease payments would have to be replaced, requiring an even more efficient operation

With planned renovations and new construction, the timing is not advantageous for taking on additional debt for the acquisition

55

Implementation Plan

ULP Analysis Recommendation for BJH

Do not exercise purchase option until Housing can meet or exceed current operating results

In the near term, solve problem of split management systems through a re-engineering of processes rather than through acquisition

In the long term, reconsider acquisition when planned renovations and construction are complete and if advantageous financially and risk-wise

Documents

Fall 2005