New era for dorms: Northeastern, UMass Boston turn to private developers for snazzy housing
The East Village tower at Northeastern University looks just like any other dorm in Boston, if a bit more shiny and new than most.
But in one important way it’s the first of its kind.
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.
“There’s a lot of potential for this,” said University of Massachusetts president Martin T. Meehan, who launched the state’s first privately built dorm when he was chancellor of UMass Lowell and has also helped steer the school’s Boston project toward the finish line. “If it works as well as we think it can work, I can imagine a lot more.”
In a kind of academic arms race, many colleges and universities are already spending tens of millions of dollars on new school buildings and centers. Yet they still risk losing students to the competition if they also don’t have modern housing. So private financing offers them a way to build top-notch dorms without taxing stretched balance sheets.
In Boston, the emergence of private developers might help the city reach its twin goals of creating 18,500 new dorm beds by 2030 and freeing up more apartments now rented by students.
Private student housing deals are more common elsewhere, but now one of the nation’s biggest college towns finally appears open for that business.
“It’s one of the premier student markets in the country,” said John Picerne, chief executive at Corvias Group, which is based in Rhode Island. “It’s a phenomenal opportunity.”
But Boston will challenge those developers. The high cost of land and construction here makes it hard to build student housing near campuses at prices students can afford. Building on campus gets developers access to low-cost land, while schools have some say in the final product. But they bring their own set of complexities.
For one, federal financial accounting rules require nonprofit universities to keep an arms-length relationship with for-profit partners, so that the dorms don’t count on their balance sheets and constrain their borrowing. Then there’s terms of the deal itself: how the land is paid for, who guarantees occupancy, how the dorm is run day-to-day.
Each party has a different interest: The developer wants a profitable deal, the school decades of housing students can afford. Both have to be willing to craft a partnership that makes long-term sense for the other, Picerne said.
“Too often, their interests align for just a moment,” Picerne said. “The developer says, ‘I’ll get my return and you’ll get your new building.’ And then they go their separate ways.”
At Northeastern, the 723-bed East Village on St. Botolph Street was built by Dallas-based Phoenix Property Co. for $96.5 million. Northeastern runs it and has a 15-year-lease from Phoenix, with an option to buy.
“To the students, it’s our building. We run it as if we owned it,” said Tom Nedell, Northeastern senior vice president for finance. The deal with Phoenix, he said, “was just a financing mechanism.”
Now Northeastern is proposing a second building that would be built and operated by American Campus Communities of Texas, the largest publicly traded student housing developer in the country. American Campus would sign a long-term lease on school land on Burke Street and build an 800-bed tower there. It would be subject to university housing rules and staffed with resident assistants, but American Campus, not Northeastern, would set and collect rents.
The company hasn’t said how much it will charge, but Northeastern said rents will be competitive with other campus housing. Student will rent directly from American Campus and not go through Northeastern’s housing lottery.
These dorms will allow Northeastern to spend its money on other priorities, such as a new $225 million science and engineering building, Nedell said.
“We’re sensitive to making the best use of our” borrowing ability, Nedell said. “We want to let someone else’s capital and equity be put to work, and use ours on things that are more strategic to our mission.”
UMass Boston has been aggressively building out its Dorchester campus but has also bumped up against self-imposed debt limits.
The school has long wanted a dorm to attract a broader range of students beyond its base of commuters.
In February, UMass Boston announced a complex deal with Alabama-based Capstone Development Partners in which the two will create a nonprofit that will finance and run the dorm. The nonprofit will borrow for the project, so UMass’s balance sheet doesn’t take a hit.
The nonprofit will pay the school for a ground lease and Capstone to build the dorm, which is estimated to cost $120 million. The nonprofit will then repay its debts with rent from students. The fees have not been set, but Capstone initially proposed charging students $5,225 per semester for a room in a three-room suite.
Governor Charlie Baker OK’d the deal after the UMass Building Authority promised 95 percent occupancy and agreed not to seek more state funds or student fees to cover any cost overruns. The Building Authority is finalizing terms with Capstone and hopes to have the dorm open by the fall of 2018.
Other local schools considering similar projects include Suffolk University. John Nucci, the school’s head of government relations, said Suffolk is exploring neighborhoods away from downtown where land is cheaper, probably near a T station. It might even team up with other schools in a sort of “student village.”
“Nothing has been developed yet, but the climate for this approach is very healthy right now,” Nucci said. “This is the direction in which we’re heading.”