Texas A&M: Making The Best Use of Space

Phillip Ray, chief business development officer for the Texas A&M University System Phillip Ray, chief business development officer for the Texas A&M University System

The Texas A&M University System is one of the largest state university systems in the country, which encompasses 11 universities, seven state agencies, two service units and a health science center.

The total number of students attending Texas A&M universities is approximately 131,833, with 53,219 of those students enrolled at the flagship campus, Texas A&M University at College Station. Not only is the system itself large, but the flagship campus, which sits on approximately 5,200 acres, is known for its sizeable amount of land. In recent years, the university system has partnered with many private companies to make use of all this valuable real estate by building and modernizing housing through P3’s that have significantly reduced university debt.

Student culture and demographics vary among each campus, but Texas A&M is widely known for its Corps of Cadets, the oldest student organization on campus, that began in 1876. Students in the program elect whether to join Army, Navy and Marine or Air Force ROTC during college, and while military service is not required, a majority of Corps students eventually become servicemen and women. Housing is a major part of the cadet experience, and one of Texas A&M’s current public private partnerships, with Hunt Companies at the Galveston campus, will build a $45 million, 612-bed Maritime Academy Cadet Residence Hall that will open in fall 2015. This is one of several housing projects the university system has embarked upon in just one year.

Among the first major projects the university system outsourced was the privatization of housing at Prairie View A&M with American Campus Communities. The project was one of ACC’s largest and earliest PPPs with a university, and began in 1996. Since then, ACC has developed and manages some 3,500 beds at the HBCU northwest of Houston. The development cost is estimated at $33 million.

In addition to the project in Galveston, the system is also currently partnering with Balfour Beatty on two campuses. At Tarleton State, Balfour is building a 502-bed facility and renovating an existing 80-bed facility at a cost of $38 million that will open in 2015. Like many of the system’s P3s, the project will be owned by Collegiate Housing Foundation, a national 501(c)(3), under a 32-year ground lease with the university. Balfour Beatty is also building some of the first housing on the flagship College Station campus’ west side, a 1,274-bed apartment-style development opening in 2015. The $104 million project is being financed by tax-exempt bonds underwritten by RBC Capital Markets.

And at the Corpus Christi campus, American Campus Communities is developing Momentum Village, a $31 million, three-building housing complex for upperclassmen that opens in 2015.

As chief business development officer for the Texas A&M University System, Phillip Ray is responsible for all real estate development projects involving public-private partnerships. Reporting directly to Chancellor John Sharp, Ray has led the charge that has ramped up system-wide construction, which is guided by the goal of preserving the university’s debt capacity and keeping most funds moving toward the systems’ goals of teaching, research and service. Ray leads several other business and financial initiatives as well, including the negotiation of operational efficiencies, financial accounting and reporting, direction of tax and fiscal activities, financial functions related to the legislative appropriations process, annual operating budget processes, historically underutilized business (HUB) initiatives, facilities planning and construction, and aircraft operations for the A&M system.

SHB talked with Ray about Texas A&M’s strategic use of private funds and its strong relationships with its partners, who are developing housing at a rapid clip.

SHB: What’s the overall layout for how public-private partnerships begin to form and get off the ground within such a large university system?

Ray: Many times, what happens is that a lot of the P3 deals that we do, real estate or business related, originate in Brazos County where the headquarters are located simply due to our size and scale. We have 53,000-plus students, and the associated research and service agencies/activities are headquartered in Brazos County, so many conversations begin here.  Once proven, we present the various concepts to the presidents overseeing our regional campuses and collaborate with them as we consider, evaluate, assess and then oftentimes adopt the new strategic partnership on their campus. For example, in 2012, we implemented a facilities outsourcing that the chancellor led for our landscape, custodial and building maintenance here in Brazos County. We are able to generate significant savings and cost avoidance. It’s estimated to be around $135 million for the facilities component alone. Then in 2013, with a year under our belts here on the flagship campus, the chancellor proposed that we take it out to the regional presidents for their consideration. We have now implemented and transitioned the strategic partnership on each of the regional campuses. Their cost savings/cost avoidance over the next 12 years is approximately $93 million. That’s just an example of where ‘proof concept’ is initiated here at the flagship and subsequently combined with the leverage of the entire Texas A&M System so that we could optimize and maximize such savings on behalf of our regional campuses as well.

SHB: What’s the history for public-private partnerships in housing at Texas A&M?

Ray: I had previously been with Texas Tech and employed with different private companies before joining Texas A&M in 2006. Public-private partnerships here predate me. Long before my time, they had partnered with ACC. It’s my understanding that ACC got one of their initial starts through the housing they built at Prairie View A&M. That’s also where much of it also started for us, particularly in student housing. Prairie View A&M had the vision and the forethought to partner and reach out, so Prairie View A&M and its administration receive the bulk of the credit for starting us down this path. My focus when I joined Chancellor Sharp was to continue evaluating this model and, on behalf of the chancellor and board of regents, to see if we might improve on the model, seek new revenue streams in these challenging budgetary times, and optimize our assets.

We’re very blessed to have a significant amount of real estate within the A&M System. That has led us to the exploration of long-term ground leases for many of our assets to enable us to better serve and support the mission of our system, which is teaching, research and service. Subsequent to Prairie View A&M’s successful venture, which was the pioneer in the A&M system, we’ve been able to implement a number of successful P3 partnerships throughout the A&M System. We partnered with ACC on 784 beds here in College Station on a 12 acre tract that had not been utilized for 20 or 30 years adjacent to campus. The development, U Centre at Northgate, opened in August 2014. The U Centre at Northgate is a long-term ground lease. ACC operates the facility. Ours is simply a ground lease at the conclusion of the agreement. The system retains all improvements as well as ownership of the land itself.

SHB: Why does the system have such faith in private partners?

Ray: We look at private funding sources we could tap and utilize on all of our projects. Part of the chancellor’s interest in P3 is access to private money. That is a significant part of our debt management and investment strategy as a system. When we can utilize private money versus adding debt to our books, then that’s preferred. It helps us better control and manage our debt capacity. Our foundational goal is to be good stewards of public funds entrusted to our care. I am confident that our ability to tap into the private market is a significant element of that strategy. In the past year alone, we have initiated five separate P3 initiatives with a total of more than 3,000 beds of new student housing that are now underway. We’re very excited about that.

SHB: How do all these new beds shape campus culture and fall in step with your enrollment?

Ray: We have no campus residency requirement. A major reason we do not is simply because we don’t have enough current bed capacity. Each time we consider adding or partnering for the construction of new beds, we first obtain an independent market study that measures the overall need, current enrollment, projected growth, the economy, each specific community as a whole, etc. and then determine if there is indeed a quantifiable need for these additional beds. While we don’t want to overbuild, we clearly want to meet the demands and requirements of our students. In each of these cases, we’ve gone out for an independent market assessment prior to engaging a P3 partner and executing an agreement. Also, we coordinate with each campus and have discussions with them regarding their master plan because we have to align such important projects within their overall master plans. It’s got to make sense from an infrastructure point of view, and it must integrate with transportation access, access to academic buildings, dining services, etc. We look at all of these things to make sure we’re all on the same page prior to executing an agreement. Then we begin the contract process where we negotiate and contract with an architectural firm through our P3 partner, and we start conceptualizing what we need. In all cases, we have also considered future growth. Potential expansion of these facilities. We try to plan our infrastructure to anticipate future growth. It’s a very collaborative effort between a full team of stakeholders who have their unique perspectives, and I think it serves us well to prioritize residence life in the discussions. There are several reasons why we look at these P3 partners to help us build housing. They are experts in constructing and developing these types of housing projects. Speed of delivery is critical to us. We have to have a quality product. It has to meet our standards. It has to coincide with the needs of the campus itself. The P3 model gives us the best chance at opening in a very compressed time frame. It also allows the campus to have a P3 partner and their team can focus on each specific campus.

SHB: What is the average age, look and style of your housing stock? What are the highlights of your master plan’s replacement schedule?

Ray: We’re very proud of our legacy. We have a rich heritage and we’ve been serving students well for a very long time. We do struggle within our system with deferred maintenance, which I’m sure is fairly common across higher education. So we’re continuing to look at ways to modernize our facilities. We have what we believe to be a reasonable and effective plan going forward. We collaborate on the larger campus master plan as well as identify a specific schedule for updating res life facilities. We’ve done quite a bit of that over the past couple of years. We continually evaluate our needs. The flagship’s president and vice president of student affairs meet periodically and they gauge the students’ feedback on what needs to be updated and when we need to add new stock. On the flagship campus, it’s actually shifting a bit to the west geographically speaking. So we’re in phase one with Balfour Beatty, which is anticipating that growth of west campus. The master plan has been very helpful in that regard. There is currently no housing on our west campus, so the P3 with Balfour Beatty represents our initial student housing venture on that portion of campus.

SHB: Tell us about your corps dorms.

Ray: The corps dorms are very integral. Certainly they are the foundation of A&M College Station. Right now we are looking at renovating those corps dorms as well. So we look at construction, we look at renovation. It depends on the facility, it depends on the heritage of the facility, it depends on the legacy and what makes the most sense for our students and university. We’re evaluating a complete renovation project as we speak. We’re planning to upgrade and add living-learning centers to the corps dorms. The models we have are res life projects, FP and C projects and the P3 model. The P3 projects, because it’s private money, they have to fund themselves. So they have to stand alone from a revenue perspective. Older facilities within the existing system are all networked. So that’s one of the challenges that we have with our corps dorms. They are networked into our old system. To isolate/have it stand alone via a P3 presents a significant challenge, particularly from a lease rate perspective, so that’s a challenge. But I think that is unique to our corps dorms because those facilities have been paid off for so long and we’ve kept up with the renovations to a high degree. These are some of the factors we’re going to have to look at in order to make a recommendation to the chancellor for his final approval on exactly which direction to go. He’s still evaluating our options, and we’re still collecting data, so it’s too early to identify a final decision.

SHB: What are some of your own goals for yourself and for the system?

Ray: From a personal standpoint, both my daughters attended and graduated from Texas A&M. There is a personal connection from being an Aggie family. You just want to provide the top facilities and the very best support you can to what we deem to be the absolute best college students in the country. We’re very proud of our students and we attempt to provide exemplary support to them and their needs. We do feel that where our students live can greatly enhance the overall academic experience for them and we believe on or close to campus is highly preferred. We understand we’re a support role, but we certainly feel we have an integral role to play in enriching their overall collegiate experience. From a professional standpoint, one of the things that really concerned me when I was in the division of finance at the flagship was that we were going through another round of staff layoffs. We were going through a reduction in force of different employees and different organizations, we had a number of competing budgetary needs, and that was very concerning to me. It was impacting everything we did. We’re all competing for available/scarce resources, so one of the things that really attracted me to the P3 model and to exploring some of these different options was the revenue-generation component. What I really appreciated back in 2012 was when the chancellor publicly committed to reinvesting those funds back into the academy and foundational mission. So when we generate those new revenue streams, those funds are reinvested back into teaching, research and service. He’s been very consistent about that during his tenure as chancellor. To me for example, being able to take a piece of land that’s been neglected for 20 years that’s been basically a dirt parking lot and to generate an average of $2 million a year that goes back into the university — that’s exciting to me. That’s where I feel like our team is making a contribution to the education of our students, faculty and staff.