State of Facilities in Higher Education

Private college and university leaders have a huge, often untapped asset - their physical campus. Data collected by Sightlines, a national firm that advises over 450 campuses on how to better manage their physical assets, estimates that the replacement value of these facilities is triple or quadruple the endowment at most campuses.

While private colleges and universities spend a lot of time and money to improve the performance of their endowment investments, there have been fewer analytical tools available to help campus leaders maximize their physical assets. In 2014, Sightlines published the “State of Facilities in Higher Education” that documents facility trends for private and public higher education institutions across the United States, with the key findings and implications summarized here.

The State of Facilities in Higher Education –
Key Trends and Implications for Private Colleges and Universities

There are several broad trends that are having a profound impact on decisions higher education leaders are making about facilities:

–Declining numbers of high school graduates are beginning to affect campus enrollments and campus density. The impacts vary by region and types of institution with small private colleges seeing the largest impact.

–Resources on most campuses remain constrained as net tuition growth is limited by financial aid pressures and outside support is at best steady.

–Capital and operating investments for campus facilities have fallen and remain below 2009 levels, in terms of real dollars.

–Capital needs for facilities continue to grow as campus spaces built in the 1960s have passed key age thresholds and need to be renewed. In addition, the more complex campus buildings constructed since 1995 require attention to keep them operating efficiently.

To respond to these trends, colleges and universities will need to make difficult decisions regarding physical assets. The response to today’s challenges must be more than further budget cuts. To make real change, leadership must rely on clearly defined policies around space management and capital allocation. The following sections document the important drivers affecting higher education facilities and propose strategies to respond to the challenges.

Understanding the History of Space

Throughout the last half century, colleges and universities have responded to periodic increases in demand through the construction of new space – a permanent solution.

The Post-War building boom. Sightlines database identifies 1950-1975 as an era when 40% of current university space was constructed. The amount of space and speed of construction during this era resulted in lower construction quality. Additionally, experimental construction techniques led to troubled mechanical and HVAC systems within these buildings. Not only are these spaces due for major repair and renovation, many of these spaces, even if renovated, will not meet today’s programmatic needs.

Millennial expansion. At the same time the 1960s buildings are demanding investments, so are the spaces built since 1995. Sightlines database identifies this period as the second largest construction era with 27% of all space nationally built since then.

In general, these buildings represent a strong construction quality and tend to be LEED certified with complex mechanical systems. This space therefore has shorter equipment lifecycles which will require more frequent maintenance.

These capital needs will inevitably compete with the ’60s buildings’ needs.

Managing Density

Demographic projections indicate that the enrollment of traditional high school graduates will no longer be able to support campus expansion at rates seen in years past.

Collectively, the single biggest way institutions are controlling facilities overhead is by managing the pace of growth. Colleges and universities of all types have begun to reach out to new populations of students, while also slowing the rate of new construction and increasing space utilization rates across campus.

At Sightlines member campuses, enrollment has grown by 9% between 2007 and 2011. During this same period, space grew by roughly half that amount. This suggests that campuses responded to the growth in campus population, but in a measured manner.

However, these trends vary significantly by type of institution. Research institutions, both private and public have been growing their density (students and faculty per 100,000 square feet) at over double the rate of others.

Comprehensive institutions are increasing density, but the small institutions are not. Our data also shows that research institutions are not seeing a leveling off of enrollment growth.

Small institutions are actually seeing a decline in student enrollment starting in 2011, however they continue to add space despite this drop. Most of these are private and residential campuses that are constructing new student life and housing space to remain competitive with peers and lower cost public institutions.

“Changing the Age” of Campus Facilities

The distribution of space across age categories is an important indicator of long-term facilities risk and therefore capital needs. When too much space is concentrated in a specific age category, such as between 25-50 years old, campuses are challenged to find the money to address the preponderance of needs coming due simultaneously.

Sightlines compared the construction age of buildings across U.S. campuses to their renovation age. This is a measure of whether there has been a significant amount of renovation (which we define as capital investment amounting to more than 50% of the building’s replacement value) to reset the clock on building systems and components.

We found significant differences in the renovation age of private compared to public institutions. Public institutions have the largest proportion of space in the 25-50 age range.

Some public institutions have made progress on renovating these buildings and resetting the clock on components and systems. Others, with less funding, are seeing their 25-50 years old spaces continue to age without significant renovation and are now crossing into the over 50 category.

Private institutions tend to have their over 25 year old space split between the 25-50 years old and over 50 year old age category. While it might appear that private campuses are disadvantaged by this space profile, remember the construction vintage discussion earlier in this report. Many of these over 50 buildings at private colleges are iconic, historic buildings that are less complex, durable, and continue to function with minimal investment.

While the age of your construction, vintage and renovation age all play a part in determining the backlog of deferred projects, access to capital over time is truly the trump card that changes the picture at individual and groups of campuses. However, the story is not total spending levels alone. Funding type and project selection must be taken into account to fully understand historical investment patterns.

The capital funding picture for both public and private campuses is significantly different in 2013 than it was in 2009. Although funding has rebounded, campuses in general have not restored capital spending to the 2009 levels, which topped out at over $5 per square foot for public institutions and over $6 per square foot for private institutions.

However, the real difference in project spending has been the increased reliance on annual stewardship funding. At private campuses, annual institutional capital funds have grown from 2007-2013 by almost 20%.

One time capital at these institutions from gifts, grants or bonds is actually $0.10 per square foot lower in 2013 than it was in 2007 and over $1.00 lower than it was at the peak funding of 2009. We believe this reduction in one-time capital is a result of less bonding by private campuses and fewer large gifts that can be used for facilities improvement. There is evidence that the reluctance of private campuses to take on more debt to solve their facilities problems is directly related to not having the growth in tuition revenue to pay the debt service.

The Growing Backlog

The difference in funding type has impacted the rate of capital backlog growth. Public universities, which in general have lower annual capital budgets and higher “onetime” funding, have a far greater rate of project deferral. Private campuses’ backlogs have grown at a rate of 15% since 2007 compared to 18% at public campuses. There is a $14 per square foot difference between private and public campuses when looking at total backlog.

Strategies for Success

While the data present clear challenges for managing campus facilities, there are colleges and universities across the country implementing strategies to meet those challenges. An easy and overly simplistic answer is a significant infusion of new capital directed at addressing facilities’ backlogs and ongoing needs.

However, we have seen that this is impractical and unlikely. There is simply not enough funding to repair existing buildings, keep up with the needs of newer buildings and construct more modern facilities to meet the desires and demands of government policy makers, institutional leaders and future students. Therefore, different strategies must be employed to release value from existing assets and optimize scarce capital.

These include:

Build strategically. Project selection for all funding sources must unite mission, finance, and the technical needs of buildings. New construction must support the master plan and future program needs of the campus.Implement policies that result in minimal net new square footage until the backlog is reduced to manageable levels.

Less can be more. Sometimes less is more when it comes to addressing aging buildings with high backlogs. Consider eliminating or replacing aging space of certain construction vintages with more modern and more efficient facilities. This “renovation through replacement” approach is growing as a way to reduce deferred maintenance.

Look ahead. Set capital priorities that reflect an investment strategy spanning at least five years. Such an approach has proven highly effective at lowering the backlog needs in aging buildings that are determined to be critical to the mission and programmatic needs of universities. The plan should be developed through engaging campus leadership in order to build constituency rather than competition.

Keep-up. Make annual stewardship (keepup) investment a priority at every campus. The more a campus keepsbup with life cycles as they come due, the less the backlog grows. As a facilities’ best practice, many campuses are creating reserve funds or building endowments so that money is available every year to steward buildings.

Be proactive. Establish facilities’ operational practices that are proactively extending the life cycles of key expensive building components.

An analysis of Sightlines data found that a dollar spent on preventive maintenance reduces $2.73/ square foot in daily work costs. Proactive maintenance is not only a good idea when it comes to managing university facilities, it will save money in the long run.

Today’s facilities challenges are great, but they are not insurmountable. Institutional leaders across the country are thinking creatively to develop new ways to manage space, set clear priorities to optimize capital resources and lower operating costs.

About the Author
Jim Kadamus, Vice President of Sightlines, has published numerous newspaper and journal articles, academic papers and book chapters. He is a frequent speaker and presenter on education issues and has appeared on the Today Show, NBC Nightly News, CNN and several other news programs.