It all depends upon where you sit.
The debate over how to finance American higher education continues to simmer. One of the most interesting aspects of this ongoing discussion has been the use of private investment to meet capital needs.
Not very long ago most senior college administrators - and the boards who took their leads from them - had little tolerance for private investment, using debt, fundraising and surpluses to meet their facilities needs. They made a good case.
These administrators argued that they could use their existing debt capacity, with historically low interest rates, to build what a campus needed. Many pointed to their budget surpluses, reserves, and balance sheets, their ability to fund deferred maintenance, and their need to control design, construction, and outfitting as crucial to how a well-run university should behave as a prudent fiscal manager of non-profit resources.
It's just not done, they argued, and there's little need for us to think about why we should be the first to put our toe into the water.
Slowly, often led by the public colleges and universities, some college administrators began to re-examine this argument. It began with a willingness to have third party residential development house upper class students beyond the college gates. Next, colleges and universities participated in some innovative public/private partnerships in mixed-use developments that helped colleges achieve a broader vision of how to be productive citizens, while meeting campus needs, within the community.
In today's environment, American higher education - whether public or private - is beginning to use private investment to meet strategic needs that link real estate, student services, academic programs, facilities expansion, and town/gown relations together in new and innovative ways.
The arguments in the higher education press recently have reflected more of a "who you are" mindset. In the Chronicle of Higher Education, Lee Gardner notes, for example, that many small colleges have begun to construct new student housing by turning to private investors. It may be a way to upgrade facilities, meet new student housing needs, or encourage higher enrollments. Or, it may be a test run at a "strong balance sheet" college like Middlebury.
Whatever the choice, the risks are clear if different depending upon where you sit. In every case, senior college administrators keep a watchful eye on competitive consumer demands, their own strategic direction, and whether the revenue from student housing and related ventures is necessary to support the academic program.
There is a growing understanding that the old college business models are insufficient to meet the rigors and demands of newer strategic thinking. The tired, archaic principles that govern the cultural inertia that inhibited private investment are breaking down - especially among the more nimble institutions, those willing to experiment from a position of strength, and those that have no choice.
It may be that the change will occur before the higher education community takes notice. The massive multi-decade expansion plans just announced by Drexel University provide an interesting example of a public/private partnership relying heavily on private investment that will be watched closely. It may also be that cities with heavy concentrations of colleges and universities will become the pilot test sites for private investment.
Like Philadelphia, Boston provides an excellent opportunity to innovate. Its mayor, Marty Walsh, has announced ambitious plans to create over 50,000 new housing units over the next fifteen years to accommodate the City's growing population. To do so, he is requesting that Boston's colleges and universities develop new facilities to vacate off campus housing that could be re-purposed, especially for the middle class.
Mr. Walsh would like to create 18,500 new dorms beds by 2030.
Concurrent with Mr. Walsh's vision is a growing interest by the area's colleges and universities. Northeastern University hired Phoenix Property Co, for example, to construct its high-rise East Village for $96.5 million.
Writing in the Boston Globe, Tim Logan notes: "East Village is the first dorm in Boston to be financed by private developers, and two more - including a second at Northeastern and one at UMass Boston - are being planned using private financing and private operators. Several other local colleges and universities are exploring the idea, and other schools are watching closely."
Mr. Logan also notes Northeastern officials believe that private construction and management of these dorms will allow the University to spend its money on other priorities, such as a new $225 million science end engineering building.
The movement of third party providers into the construction of residential halls and other spaces - non-core, non-academic real estate - highlights the opportunity to imagine how colleges and universities can put the pieces together to re-think their budget and capital facilities management priorities.
It's not that colleges and universities like Northeastern and Middlebury couldn't proceed with facilities management using time-honored approaches. It may be that they have come to recognize - before many of their colleagues elsewhere - that the big question is actually how you finance the bigger enterprise going forward.
Not every college should adopt the Northeastern approach. But many likely will over a relatively short-term. And the smart CFO's, facilities heads, presidents and trustees should look at what's happening closely. It's no longer enough to claim that an action is taken because "we've always done it that way."