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End Note

Residential Partner

Privatizing a public university's housing operation
University Business, January 2013
The $25.8 million New Central Residence Hall is scheduled for fall 2013 occupancy.
The $25.8 million New Central Residence Hall is scheduled for fall 2013 occupancy.

In all the understandable buzz about massive open online courses (MOOCs) and alternative models for delivering content, remember this: Residential campuses will continue to be critical to higher education and to preparing a competitive 21st-century workforce. Why? For starters, as MIT President L. Rafael Reif wrote recently in The Wall Street Journal, high quality online education and affordable residential campuses are intertwined. Online education can make “residential education better and less expensive” for unlimited numbers of people. At the same time, he wrote, “the quality of purely online education will depend on the residential education from which it stems.”

On-campus students do better academically and socially. The most technologically advanced learning options in the context of a residential campus fostering interdisciplinary education will help set the course for the success of American education and our economy in the future. How can we provide that 21st-century education in the midst of what remain daunting economic circumstances?

Undertaking partnerships is one approach. At the University of Kentucky, we are in the midst of working on a public-private partnership to completely rebuild and expand our entire student housing system. In the process, we may become the first large public university in the country to have its housing operation financed and operated completely by a private company.

Such an arrangement leverages what the private sector does best—building housing quickly and operating it efficiently—with what we do best—educating and preparing students for lives of leadership, meaning, and purpose in a 21st-century, global economy.

The need is clear. Our existing housing stock is, on average, 50 years old. Using the university’s traditional financing mechanisms, we would, at best, only be able to construct one new res hall every couple of years.

Working with private sources to completely finance the housing, we don’t impact our existing debt capacity, which we must preserve for adding classroom and research space. These moves will continue to enhance the education we provide and the global research and service we conduct.

Constructing a Deal

With the leadership of our Board of Trustees, we recently finalized agreements with EdR, a publicly traded private developer, to construct nearly 3,000 residence hall beds on our campus between now and Fall 2014. The first 600 beds—part of a new residence hall devoted, in part, to honors students—will be open in August 2013. The next five residence halls will follow just one year later. Our hope over the next five to seven years is to rebuild our entire housing stock. That means tearing down and rebuilding most of our 5,100 residence hall beds and expanding up to as many as 9,000 total beds.

Our partner is bringing 100 percent equity financing—potentially $500 million—to the table for the construction. We’ll continue to own the buildings and the land, but engage in a long-term lease with EdR to manage and operate the facilities.

With our existing, strong debt capacity, the plan is also to finance new classroom buildings and research space. In this current economic climate, we must look to ourselves for much of our construction funding. State appropriations for capital and federal funding for research have been significantly cut or are flat. We have to earn our way forward, finding new ways to address old challenges.

Such approaches are how we continue to honor what we call the Kentucky Promise. It’s the idea that, for nearly 150 years, we have provided education, research, and service to a commonwealth and world in need of all three. With this ambitious project, we are moving rapidly, but deliberately, to honor that promise anew in a rapidly changing world, but still very much in need of the kind of leadership provided only by strong, vibrant residential higher education.