The Holy Grail – Positive Cash Flow in Year One

Colleges must consider new options to protect cash flow.

College officers today face real challenges in delivering new student housing beds without obligating the institution to years of negative cash flow. In the Midwest, we have seen a number of new dormitory projects that are running in the $65,000 to $85,000 per bed range. Unfortunately, costs of this size can lead to negative cash flows that may persist for 7 to 10 years or more before turning positive.

However, a creative approach in considering adaptive re-use, combined with attractive financing alternatives, can result in an early positive cash flow that may even include year one.

The renovation of an older on-campus facility — that may not even have been housing in its former life — is one way the process can start. Here, careful analysis by the architectural/design team can test different per-square-foot renovation cost scenarios with a close eye on the ultimate cost per bed. The advantage of an older facility is that you may have an attractive depreciated value from the beginning that leads to lower-than-normal final completed costs.

We have also seen a case using former hotel lodging facility units that were renovated for student housing and then transported to the site. These modular units were manufactured in an industrial facility years earlier using conventional construction standards. Fully furnished per bed costs of $35,000 would not be unusual under this scenario, resulting in positive cash flow in year one. The positive cash flow in some cases is further enhanced by pool bond funding which can result in lower constant debt service than conventional financing.

If the “new normal” for educational institutions includes less state and federal funding (a likely scenario), then colleges will be forced to consider a number of different alternatives to traditional new-build dormitory facilities. The future may well belong to colleges and universities that are willing to consider more non-traditional options, including adaptive re-use and outside-the-box solutions.


— Frank L. Christy is president of Christy & Associates, Inc., a company that specializes in providing adaptive re-use solutions for colleges and universities. He can be reached at (740) 374-2770 or frank@christyandassociates.com.

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