a case study of master-planned university development in africa: an open canvas for investors where...
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A presentation by Andrea Christie Pizziconi at TBLI CONFERENCE EUROPE 2008.TRANSCRIPT
Sustainable University Development in Africa:
The Role of Private Capital in
Addressing Public Sector Needs
Green Real Estate TBLI Amsterdam November, 2008
International Targets For Higher Education Enrollment in Africa
• Target University Gross Enrollment Ratios: 10%
• Estimated Cost to Deliver Facilities to Meet Target Gross Enrollment Ratio: $10.85 billion
• Projected International Funding Allocated to Facilities: $350 million
• Total Number of New Seats Needed to Deliver Enrollment Goals: 6,204,259
Eligible Population
200569,932,500
201078,804,184
201588,309,793
202098,263,803
p. 3
Model of University Mixed-Use Development
Waste-to-EnergyAnd WaterFacilities
Universities
Health Facilities and Research Laboratories
SecondarySchools
PrimarySchools
Commercial Development
Microfinance Enterprises
Staff and Student Housing
Mixed-IncomeCommunity
Housing
University Cities Educational Villages
Clean WaterSmall Scale
SecondarySchools
Health Clinic
Small scaleAgro-Business
PrimarySchools
MicrofinanceEnterprise
Staff Housing
CommercialDevelopmentSmall Scale
Waste-to-energySmall Scale
Mixed IncomeCommunity
Housing
p. 4
Importance of Quality of Life and Design to Human Productivity
• Major human productivity gainsthrough enhanced natural light,indoor air quality, and acousticsin learning environments.
• Poorly maintained facilities havea negative psychological impacton student and teacherconfidence.
• Increase in temperature of 10degrees (Fahrenheit) abovemoderate can decreaseachievement by 30%.
• Quality design aesthetics inlearning environments have beenlinked to enhanced achievementthrough increased confidence andsense of pride in endeavors.
Faculty retention and migration studies showteachers must be paid 40% higher salaries toprevent migration towards better facilities andmore convenient locations.
p. 5
Benefits to University From BOT Public-Private Partnerships
• Off balance sheet financing allowsuniversities access to additionalcapital without the debt burden.
• Private sector partners build fasterand at lower costs.
• Cost savings can be applied toadditional amenities or facilities.
• Private asset management allowsuniversities to focus more resourceson building their academic brand.
• Private developers bring coreexpertise in other developmentsectors including commercial andresidential, which enhances thequality of life for the universitycommunity.
p. 6
Promote Environmentally Sensitive Development
Solar Orientation & Passive Solar Shading:• Reduces heating/cooling loads by 15% – 35%.• No moving parts to ‘break down’ with ultra-low
maintenance .• Key component to passive survivability.
Medium Density Massing• Substantially reduces construction costs.• Relies more heavily on local materials and labor.• Facilitates more efficient use of sustainable energy
systems.• Reduces maintenance and replacement costs.
Natural Day Lighting (Energy Systems)• ‘Free’ lighting reduces peak electric power demand.• Increased occupant comfort, productivity and
health.
Regional Materials:• Recycled/recyclable materials conserve natural
resources.• Locally sourced materials & labor lowers embodied
energy.• Supports local/regional economy.
Daylight/Passing Cooling
Shading Devices
Medium Density Massing
Regional Materials
p. 7
Focus on Transit Oriented Development
• Frequent and convenient mass transitdramatically increases quality of life forresidents through reduced traffic, pollution,and urban noise.
• Affordable mass transit increases mobility oflow-income workforce encouragingeconomic development.
• Reduced vehicular traffic supports shoppingand dining with pedestrian-friendlystreetscape.
• Accessible university public transitthroughout downtown promotesconsumerism among university affiliates.
• Well-managed and sustainable public transitcan create significant revenues for the cityand the university.
With congestion remaining the primary quality of life issue in most major African cities such as Nairobi and Dar es Salaam, thoughtful and accessible public transit systems throughout campus development schemes can substantially enhance the consumer draw.
p. 8
Integration of Public and Private Facilities to Promote Smart Growth
Universities can increase their annual operating revenues by leasing auditoriums and other public facilities to private companies when co-located with commercial office tenants. Other possible revenues include leasing dormitories off-season as hotel rooms during conferences held on campus.
Locating student dorms above retail space conserves land resources for future complementary development.
• Reduces overall cost to publicinstitutions as private facilities cross-finance public uses.
• Enhances project economics and long-term asset value by drawing consumersto public facilities such as libraries,theaters, municipal administrationbuildings, schools and leisure centers.
• Increases tax revenues to municipalitiesas there are fewer tax-exempt landparcels.
• Creates a more desirable urban contextfor long-term development of the city.
• Promotes casual interactions amongdiverse socio-economic and age groupswhich promotes student development.
Social Impact of Constructing 50,000 Additional University Seats in Africa through Public-Private Partnerships
Short-term Social Impact• 20,107 new jobs created directly
by university.• Teachers trained for 20,000
additional student seats annually.• 5,741 new jobs for women;
25,000 new women university graduates; 10,000 new girls in primary school.
• Commercial space for over 600incubator companies and over 2,200 local retailers co-located on campus.
• Student housing for 50,000students plus an additional 500mixed-income residential units.
• 98,800 additional temporary and permanent jobs.
Long-term Social Impact• Increase of 6% in the survival rate of
children under age 5.• Decrease maternal deaths from
childbirth by 44 per 100,000.• Long-term financial support for
7,000 full tuition scholarships annually for BOP students from proceeds of university endowment.
• Each additional year of education in Africa increases annual income by 11%.
• University education has a multiplier effect (2.54 for men and 2.17 for women) on average earnings.
• When higher education graduates increase by 1%, long-term GDP output grows between 0.42% and 0.63% while industrial output increases 35%.
p. 10
Project Cash Flow Chart: Target Return of 25%
Portion of Revenues to University Endowments
Grants & Foreign Aid
Non-profit Partner
Universities &Secondary Schools
University Revenue Resources
Investment Capital& Financing
Investment &Development Fund
Local Partners
Development of Schools& Co-Located Uses
Local Market Demand
CapitalRevenue
After distributing project cash flows to investors, a portion of income proportionate to replacement reserves will be distributed to a university endowment fund created and managed by the investment fund manager for the duration of the project.
Revenues to InvestorsTarget 25% IRR
1. Securitization of long-term cash flows with credit-enhancing guarantees:
Infrastructure projects based on Build-Operate-Transfer model create long-termstable cash flows where securitization is the optimal exit strategy for investors.
2. Portfolio sale of non-institutional facilities to Regional Private Equity and Pension Funds:
First-mover advantage and unique access to deals is attractive to regional investment firms seeking medium-term investments with diversified sources of risk/return.
3. IPO of Operating Enterprises:
Economies of scale within the school/university network will provide a convenient infrastructure to scale up operating companies that provide critical services to university markets.
Short-term and Long-term Exit Strategies
University areas of major cities in Africa alreadyboast some of the most desirable commercial andresidential districts in their cities. Mlimani Cityat the University of Dar es Salaam is the premiershopping district in Dar es Salaam, Tanzania.
p. 12
Key Risks and Mitigation Strategies for University Housing Investments
Challenges and Risks
1. Investment model is unprecedented and reliable empirical data is lacking.
2. Corruption is prevalent especially in sectors heavily reliant on government agencies.
3. Some potential investments have unproven market conditions.
Mitigation Strategies
Rigorously utilize external consultants (international and local) to create clarity of analysis on local conditions. Develop valuations with information from historical circumstances in other relevant international markets and asset classes.
Work closely with international governments, foundations, bilateral and multilateral organizations who have established a track record for successfully combating corruption in local target areas.
Make investment decisions that rely on extensive due-diligence to identify opportunities with only extremely pent-up demand and constrained supply that has been proven through reliable third-party feasibility studies.
p. 13
Projected Financial Returns
MIXED USE DEVELOPMENT KENYA TANZANIA SIERRA LEONE
STUDENT DORMITORY SF 86,250 207,000 230,000
ACADEMIC FACILITIES SF 160,000 20,000 20,000
COMMERCIAL OFFICE SF 287,500 5,750 8,650
COMMERCIAL RETAIL AND FOOD SF 132,000 11,000 11,000
SECONDARY SCHOOL FACILITIES SF 21,500 N/A 21,000
TOTAL BUILDING AREA 1,138,250 246,625 269,625
ANNUAL GROSS REVENUES $ 8,245,000 $ 2,126,150 $ 2,486,500
ANNUAL OPERATING EXPENSES $ (727,175) $ (410,829) $ (479,625)
NET OPERATING INCOME $7,517,825 $ 1,630,275 $ 1,917,405
ANNUAL DEBT SERVICE ($1,333,572) ($1,063,180) $ (1,081,363)
CASH FLOW AFTER DEBT SERVICE $ 6,184,253 $ 567,095 $ 826,051
TOTAL DEVELOPMENT COSTS $67,552,571 $14,217,238 $ 14,460,388
TOTAL DEBT $41,688,976 $10,662,928 $ 8,676,233
TOTAL EQUITY $24,412,345 $3,554,309 $5,784,155
RATE FOR SECURITIZATION 10% 6% 6%
IRR 42% 81% 66%
RETURN ON EQUITY 119% 67% 44%
p. 14
A New Vision for Higher Education in Africa
Local Merchant Retail and Services
Business and Medical Magnet Secondary Schools
Commercial OfficeIncubator Space
Staff Housing Student
Housing
University Medical and Business Schools
Adult Learning and ICT Center