Conditions are right for more campus PPPs, Fitch says

The ratings agency said tight budgets and risk management will lead more colleges and universities to enter public-private partnerships for campus developments.

Expect to see more US college and university public-private partnerships as tight government budgets, changing student enrolment trends and the need for expansion create opportunities for private development, Fitch Ratings has said in a report.

Higher education PPPs are on the rise across the country due to a number of factors that make private developers an attractive option to host institutions, the report said. Facing budget shortfalls, PPPs allow schools to shift development risks to a third party and avoid taking on debt. The private sector also offers construction and long-term management expertise.

“The reason this is appealing to the universities is it gives them the opportunity to bring in the private sector, to take risk that is ordinarily or traditionally born by the university and the university balance sheet,” Scott Zuchorski, the report’s author, said.

For now, developers are most interested in projects that generate revenue, like parking garages or student housing. The college or university agrees to make availability payments to the developer against asset performance.

The market for campus PPPs is increasing, driven by both government actions and student enrolment, Fitch noted. Federal policies are affecting international enrolment and research funding, and state governments are managing tighter budgets. New student enrolment is shifting from private colleges, which still need upgrades and new buildings, to rapidly expanding public universities.

“Given the funding challenges faces colleges and universities throughout the US, I think we’re going to be seeing a significant pipeline. They might come in various shapes and sizes and different forms, but the principles will be the same,” Zuchorski concluded.