north campus housing phase iv(b), oak hall: stage 2 approval · north campus housing phase iv(b),...

F–6 STANDING COMMITTEES Finance and Asset Management Committee

F–6/202-19 2/14/19

North Campus Housing Phase IV(b), Oak Hall: Stage 2 Approval RECOMMENDED ACTION It is the recommendation of the administration and the Finance and Asset Management Committee that the Board of Regents:

1. Approve the project budget for the UW North Campus Housing (UWNCH) IV(b) of $65,500,000; and

2. Approve the Funding Plan – Housing and Food Services Reserves. BACKGROUND The original project, contracted under the GC/CM delivery method, was terminated when the Design Development estimate came in substantially over budget. The project was re-launched as a Design-Build project and the new team includes a new contractor and a local architect supplementing the design architect. The current contract amount represents $8 million in savings, which maintains Oak Hall’s programmed scope while adding Denny Field into the project. Housing Master Plan Project IV(b) includes the construction of a 360 bed residence hall (Oak Hall), the restoration of Denny Field and landscaping to create Lewis Grove. It originally included the demolition and minor site restoration of Haggett Hall. The demolition and potential redevelopment of Haggett Hall will be pursued as a future project, and is accounted for in the Housing & Food Services (HFS) proforma for fiscal years 2021-2027 as a capital expenditure that has not yet been approved by the Board of Regents. Demand for on-campus student housing remains high. Occupancy for this academic year is at 106 percent of built capacity due to 608 third beds in designed double rooms. System capacity will remain neutral upon the opening of Oak Hall (+360 beds) and the decommissioning of Haggett Hall (-403 beds). Because HFS has experienced high demand over the last decade and has been unable to house all students who request to live on campus, HFS anticipates filling all new beds that would result from a redeveloped or renovated Haggett Hall. In addition, HFS is conducting a 2019-2030 demand study, to be completed in the spring of 2019. In the event that the study shows demand softening, Haggett Hall would be filled by eliminating the remaining tripled rooms in the HFS system.

STANDING COMMITTEES Finance and Asset Management Committee North Campus Housing Phase IV(b), Oak Hall: Stage 2 Approval (continued p. 2)

F–6/202-19 2/14/19

Attachments 1. Housing and Food Services Master Plan Summary 2. UW North Campus Housing Phase IV(b): Project Summary 3. UW North Campus Housing Phase IV(b): Financing Plan and Credit

Analysis 4. UW North Campus Housing Phase IV(b): Site Plan

Housing & Food Services Master Plan Summary

Overview Prepared for the UW Board of Regents

February 2019

The Housing Master Plan (HMP) began in 2007. Three major issues motivated it:

1. Age of existing housing stock which was in need of substantial renovation or replacement as

documented during 20 years of consultant-provided building condition surveys

2. Demand for on-campus housing, demonstrated in 2007 by Housing & Food Services (HFS)

having pent up demand and housing 2,100 students three to a room in designed doubles;

consultant survey work concluded demand for 3,400 on-campus beds

3. Student demand for program space that would allow for study, group projects, academic out-

of-classroom partnerships, maker spaces, enhanced dining options, fitness and other

community spaces

Hanbury, an architectural and planning firm, completed the HMP planning document in 2008. The firm

worked with the UW to study demand, available building sites, student needs, and desires and helped

build a financial proforma. The study promoted the substantial renovation of existing buildings and the

addition of 3,000-4,000 new beds designed to meet the needs of students from freshmen through

graduate students. A subsequent study proved that replacement of many of the mid-20th century

buildings would be 40 percent less costly than renovation, provide additional beds on the same land

allocation and drastically improve the academic support and social spaces in the buildings.

Phase I-III of the HMP took place in the west campus area. These phases constructed 4,300 new beds

and demolished 1,650 beds in mid-20th century dormitories, for a net bed increase of 2,650. Room styles

included residence hall rooms for two people with private baths, studio apartments, and four- and six-

bedroom apartments. In addition to residential rooms, the following spaces were delivered: Area 01

(maker space and student recreation), West Campus Fitness Center, Local Point food court dining,

Cultivate (restaurant), Husky Grind Café at Mercer, Regional Service Desk, Poplar Academic Resource

Center, Alder Commons (auditorium, meeting and study space), and the District Market (grocery store).

The west campus buildings were developed for $360/square foot, or $140,000/bed escalated to 2018.

Phase IV of the HMP is taking place in the north campus area. Sub-phases A and B result in 2,100 new

beds and the demolition of one 600-bed mid-20th century dormitory, for a net bed increase of 1,500.

Room styles include residence hall rooms for one, two, three and four people with private baths. The

triples and quads were added to create lower-priced options for residents. In addition to residential

rooms, the following spaces were/will be delivered: The MILL (maker space in partnership with the

College of Engineering), Center Table food court dining, Regional Service Desk, Madrona Academic

Resource Center, District Market and café, and a student activity and banquet space. In addition,

historic Denny Field will be reconstructed along with landscape restoration of the area behind Lewis

Hall.

ATTACHMENT 1F-6.1/202-19 2/14/19

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The final phase of the HMP is projected to include the demolition and replacement of Haggett Hall, the

substantial renovation of McMahon Hall and a minor renovation of Hansee Hall.

The HMP buildings were completed considering both the initial capital cost and the cost to operate over

50–60 years. Over the past ten years, the UW average cost per residential building was $393/square

foot escalated to 2018. The Stanford Benchmark survey accumulates construction data for universities

across the United States; according to this analysis, the average cost for residential buildings at other

west coast universities averaged $502/square foot escalated to 2018. The low cost of construction

without sacrificing life-cycle cost allows the UW to offer student rents that are in the bottom 25 percent

of the Pac-12 universities.

F-6.1/202-19 2/14/19

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Approve Project Site

Approve Architect Selection - Kieran Timberlake

Delegate Award of GC/CM Contract

Approve Funding Plan

Proposed Budget Proposed Funding

Consultant Services 660,120$ 1% State Funds -$ 0%

Construction Cost 51,922,061$ 79% UW Building Fund -$ 0%

FF&E & Other Costs 5,833,413$ 9% UW Central Funds -$ 0%Contingency 2,516,754$ 4% UW - Housing & Food Services* 62,200,000$ 95%

Haggett Hall -$ 0% UW - HFS previously funded ** 3,300,000$ 5%

Accrued Costs to Date ** 4,567,652$ 7% Total Funds 65,500,000$ 100%

Total Project Cost 65,500,000$ 100%

* HFS Reserves** Design and other soft costs for Oak Hall, Haggett Hall and Denny Field prior to Design/Build Contract

Costs escalated to 2019 (project costs)

Stanford Benchmark of west coast university housing previous five years ($155,750/bed)

Maple and Terry Halls ($132,000/bed)

Lander Hall ($153,500/bed)

Current

Estimate

Predesign

Targets

Current

Estimate

Predesign

Targets

66,979 287,886 Construction Cost/GSF $455 $255 108,195 435,651 Project Cost/GSF $563 $321

GSF/Bed 300 415 Project Cost/Bed $161,000 $133,000 Efficiency (NASF/GSF) 62% 66%

This project completes Phase IV of a ten-year plan to increase capacity and provide safe, affordable, quality housing for its students,

encouraging on-campus residency. Oak Hall will provide an additional 360 beds to the 1,774 beds completed in North Campus

Housing Phase IV(a) (Madrona, McCarty, and Willow Halls).

Schedule

Regent Actions

Approve Project Budget - $65,500,000

Objective

Approve Preconstruction Budget - $10,000,000

Description

Net Assignable SF (NASF)Gross SF (GSF)

* Predesign target included Haggett Hall, which is now removed from Phase 4B

This project will include the construction of Oak Hall and landscape improvements in the area behind Lewis Hall as well as the

reconstruction of Denny Field as an artificial surface all-season field with lighting starting in May 2019 with occupancy in fall 2020.

North Campus Housing Phase IV(b) originally included the demolition and minor site restoration of Haggett Hall. The demolition and

potential redevelopment of Haggett Hall is accounted for in the Housing & Food Services (HFS) proforma in fiscal years 2021-2027 as a

capital expenditure that is not yet approved by the University of Washington Board of Regents.

Financials

Benchmarks

Metrics & Indicators

UW North Campus Housing Phase IV(b) Project Summary

Stage 1 Actions:

July 2016

Stage 2 Actions:

February 2019

ATTACHMENT 2F-6.2/202-19 2/14/19

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UW North Campus Housing Phase IV(b) Financing Plan and Credit Analysis

Financing Plan and Credit Analysis

The $65.5 million investment in the construction of Oak Hall, the restoration of Denny field, and

landscaping to create Lewis Grove (the “Project”) completes phase IV of the 2009 Housing Master

Plan. It is critical in addressing continued demand for on-campus housing, and providing safe,

affordable, and quality housing for University students.

The Treasury Office has worked closely with HFS to perform a credit analysis and to assess the

ability of the system to fully fund the Project with reserves. The scope of the analysis included the

creation of an updated Project proforma, including the impacts of the Project and an in-depth

review of provided data, a financial risk assessment based on conversations with HFS, an

evaluation of the impact of a series of stress tests on the proforma, and the identification of

mitigation plans. The process for due diligence is well-defined but not exhaustive. It is not

intended to replace the work of the management team, and offers no assurance of financial

performance.

Treasury believes HFS has demonstrated a strong ability to fully fund the Project with program

reserves, as well as robust contingency plans to mitigate potential future risks. The Project will

not require funding from an ILP loan. The Project proforma will serve as the benchmark for

reporting related to ongoing compliance, which occurs primarily through the HFS Semi-Annual

Borrower’s Report.

Key Assumptions

The key assumptions affecting the proforma are occupancy rates, rental rates, and operating

costs. Other assumptions include interest income, residential dining rates, and summer

conference revenues (not listed below).

Revenues (FY19-FY29):

Operating occupancy of 9-month housing areas of 97%

Rental rates increase by 5% annually from FY19-FY21 and by 3% annually from FY22-FY29

Expenses (FY19-FY29):

Building operating expenses grow 3% per year from FY19-FY29

Haggett Hall operating expenses:

- Decrease by 25% in FY19 due to the planned closure of the South Tower; and

- Decrease by 100% in FY21+ due to the decommission of Haggett Hall

Capital expenditures yet to be approved by the Board of Regents are included in order to

demonstrate expected future uses of reserves, including:

ATTACHMENT 3F-6.3/202-19 2/14/19

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- The demolition of Haggett Hall in in FY21-FY22 and its subsequent redevelopment in

FY24-FY27

- The renovation of McMahon Hall in FY28-FY29 (with project completion slated for FY31)

Base Case Proforma (see Appendix A)

The Base Case proforma shows that HFS can fund the construction of the Project entirely through

the use of program reserves:

Debt Service Coverage (DSC) exceeds the 1.25x ILP minimum requirement in all years, with

a minimum of 1.29x in FY20 and a maximum of 1.91x in FY29

Total system reserves are projected to exceed the ILP minimum (4 months of adjusted HFS

operating expenses plus $2.5 million for committed capital expenses) in all years

Total system reserves are projected to reach a maximum of $65.0 million in FY19, and are

projected to stay above $27.1 million in all following years

Beginning in FY21, projected reserves fluctuate based on capital expenditures yet to be

approved by the Board of Regents

Stress Tests & Sensitivity Analysis (see Appendix B)

Three stress tests were performed (see Appendix B). For illustrative purposes, the stress tests

assume no mitigation is taken by HFS.

Construction cost escalation at 10% over Base Case (requires additional reserves of $6.6

million in FY20-FY21)

- Neither DSC nor reserve balances fall below the ILP minimum under this scenario

System occupancy drops by 10% to 87% beginning in FY20

- DSC falls below the ILP minimum in FY20 to 1.15x and in FY21 to 1.24x

- As a result of the reduction in occupancy, the reserve requirement falls below the ILP

minimum in eight out of eleven fiscal years included in the proforma, reaching the

lowest ending reserve balance in FY27 of $1.5 million

Combined stress case (both conditions described above)

- DSC falls below the ILP minimum in FY20 to 1.15x and in FY21 to 1.24x

- As a result of the combined effect of escalated construction costs and a reduction in

occupancy, the reserve requirement falls below the ILP minimum in ten out of eleven

fiscal years included in the proforma. The lowest ending reserve balance of -$5.3

million is forecasted to occur in FY27

F-6.3/202-19 2/14/19

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Risk Mitigation Plan

Mitigations include:

Decreasing capital expenditures through strategic reductions in future capital plans

Decommissioning older, less cost-efficient buildings (i.e. Haggett Hall) which would reduce

operating expenses (i.e. eliminate building related and residential life program-related

expenses)

The financial impacts of the proposed mitigation plans were examined (as shown in Appendix B).

As a result of the identified mitigation plans, HFS exceeds the ILP minimums for DSC and reserve

requirements in all years. The broader impacts of the mitigations include the potential revision to

future capital plans, programs, and services provided by the system.

F-6.3/202-19 2/14/19

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UW North Campus Housing Phase IV(b)

Appendix A: Base Case Proforma (dollars in thousands)

(1) CAGR = Compound Annual Growth Rate

(2) Includes capital expenditures yet to be approved by the Board of Regents (3) Represents 9-month, 12-month, and family housing occupancy assumptions

(4) Minimum coverage set at 1.25x

(5) Minimum reserves set at 60% of four months operating expenses plus $2.5 million

FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029

CAGR (1)

(2018-2016)

CAGR (1)

(2019-2029)

Beginning Balances 53,580$ 62,713$ 65,648$ 83,574$ 65,024$ 27,072$ 31,249$ 35,142$ 53,569$ 59,034$ 51,842$ 45,784$ 42,232$ 44,778$

REVENUE

Operating Revenue 121,376$ 129,925$ 139,552$ 157,081$ 161,838$ 165,692$ 170,889$ 176,282$ 180,944$ 186,769$ 192,816$ 199,079$ 205,584$ 218,607$ 7.2% 3.4%

Phase 4b -$ -$ -$ -$ -$ 3,461$ 3,566$ 3,673$ 3,783$ 3,897$ 4,014$ 4,134$ 4,258$ 4,386$ - -

Total Revenue 121,376$ 129,925$ 139,552$ 157,081$ 161,838$ 169,153$ 174,455$ 179,955$ 184,728$ 190,666$ 196,829$ 203,213$ 209,842$ 222,993$ 7.2% 3.6%

EXPENSES

Operating Expenses 72,633$ 76,387$ 80,381$ 88,870$ 93,704$ 95,560$ 99,097$ 102,780$ 106,617$ 110,614$ 114,778$ 119,118$ 123,641$ 128,358$ 5.2% 3.7%

Phase 4b -$ -$ -$ -$ -$ 775$ 798$ 822$ 847$ 872$ 899$ 925$ 953$ 982$ - -

Total Expenses 72,633$ 76,387$ 80,381$ 88,870$ 93,704$ 96,335$ 99,895$ 103,603$ 107,464$ 111,486$ 115,676$ 120,043$ 124,595$ 129,339$ 5.2% 3.8%

NET OPERATING REVENUE 48,742$ 53,538$ 59,171$ 68,212$ 68,134$ 72,818$ 74,560$ 76,352$ 77,264$ 79,180$ 81,153$ 83,170$ 85,247$ 93,654$ 10.2% 3.2%

Existing Debt Service 32,952$ 35,434$ 38,876$ 50,470$ 52,883$ 52,886$ 52,855$ 49,496$ 49,497$ 49,498$ 49,497$ 49,499$ 49,347$ 48,951$

TOTAL DEBT SERVICE 32,952$ 35,434$ 38,876$ 50,470$ 52,883$ 52,886$ 52,855$ 49,496$ 49,497$ 49,498$ 49,497$ 49,499$ 49,347$ 48,951$ 8.6% -0.3%

Subtotal: Net Operating Cash Flow 15,791$ 18,103$ 20,295$ 17,741$ 15,252$ 19,933$ 21,705$ 26,857$ 27,766$ 29,682$ 31,656$ 33,671$ 35,900$ 44,702$

Non-Operating Revenue 2,108$ 3,374$ 7,132$ 1,682$ 1,343$ 1,290$ 1,119$ 1,163$ 1,205$ 1,319$ 1,369$ 1,357$ 1,354$ 1,096$

Capital Expenditures (2) 9,721$ 18,542$ 9,500$ 37,973$ 54,547$ 17,046$ 18,931$ 9,592$ 23,507$ 38,192$ 39,083$ 38,580$ 34,708$ 44,916$

Cash Flow 8,178$ 2,935$ 17,926$ (18,550)$ (37,952)$ 4,177$ 3,893$ 18,427$ 5,464$ (7,192)$ (6,058)$ (3,552)$ 2,546$ 882$

Ending Balance 61,758$ 65,648$ 83,574$ 65,024$ 27,072$ 31,249$ 35,142$ 53,569$ 59,034$ 51,842$ 45,784$ 42,232$ 44,778$ 45,660$

Net Revenue % change 11.4% 7.0% 7.4% 12.6% 3.0% 4.5% 3.1% 3.2% 2.7% 3.2% 3.2% 3.2% 3.3% 6.3%

Operating Expenses % change 9.7% 5.2% 5.2% 10.6% 5.4% 2.8% 3.7% 3.7% 3.7% 3.7% 3.8% 3.8% 3.8% 3.8%

Net Operating Cash Flow % change 4.6% 14.6% 12.1% -12.6% -14.0% 30.7% 8.9% 23.7% 3.4% 6.9% 6.7% 6.4% 6.6% 24.5%

Occupancy as a % of Operating Capacity (RH/SSA/FHA) (3) 97/91/93 97/91/93 97/91/93 97/91/93 97/91/93 97/91/93 97/91/93 97/91/93 97/91/93 97/91/93 97/91/93 97/91/93 97/91/93 97/91/93

Bed Count 7,663 8,423 8,658 9,575 9,575 9,525 9,525 9,525 9,526 9,527 9,528 9,528 9,528 9,529

Coverage (Net Operating Revenue / Debt Service) (4) 1.48 1.51 1.52 1.35 1.29 1.38 1.41 1.54 1.56 1.60 1.64 1.68 1.73 1.91

Reserve Requirement (5) 17,027$ 17,777$ 18,576$ 20,274$ 21,241$ 21,767$ 22,479$ 23,221$ 23,993$ 24,797$ 25,635$ 26,509$ 27,419$ 28,368$

Excess Above Required Balance 44,732$ 47,870$ 64,998$ 44,750$ 5,831$ 9,482$ 12,663$ 30,349$ 35,041$ 27,045$ 20,149$ 15,723$ 17,359$ 17,292$

Actual Projected

F-6.3/202-19 2/14/19

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UW North Campus Housing Phase IV(b)

Appendix B: Stress Tests and Mitigations

(dollars in thousands)

(1) Represents 9-month, 12-month, and family housing occupancy assumptions

Stress Test: 10% Construction Cost Escalation

FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029

HFS Income Before Debt Service and Capital Expense $68,212 $68,953 $73,050 $74,799 $76,598 $77,516 $79,440 $81,421 $83,446 $85,532 $93,959

Total Debt Service $50,470 $52,883 $52,886 $52,855 $49,496 $49,497 $49,498 $49,497 $49,499 $49,347 $48,951

HFS Debt Service Coverage 1.35 1.30 1.38 1.42 1.55 1.57 1.60 1.64 1.69 1.73 1.92

HFS Income After Debt Service and Capital Expenses ($18,550) ($43,242) $3,967 $4,106 $18,646 $5,692 ($6,956) ($5,813) ($3,298) $2,810 $1,168

Ending Reserve Balance $65,024 $21,782 $25,749 $29,855 $48,501 $54,193 $47,237 $41,424 $38,126 $40,935 $42,103

Occupancy Percentage (RH/SSA/FHA) (1) 97/91/93 97/91/93 97/91/93 97/91/93 97/91/93 97/91/93 97/91/93 97/91/93 97/91/93 97/91/93 97/91/93

Excess Above Requirement $44,750 $541 $3,982 $7,376 $25,281 $30,200 $22,440 $15,789 $11,617 $13,517 $13,735

Stress Test: 10% Drop in Occupancy





HFS Income After Debt Service and Capital Expenses ($18,550) ($45,293) ($3,228) ($2,736) $12,629 $558 ($11,141) ($8,983) ($5,381) $1,888 $1,484



Excess Above Requirement $44,750 ($1,510) ($5,264) ($8,712) $3,176 $2,962 ($8,984) ($18,805) ($25,059) ($24,081) ($23,546)

Stress Test: "Perfect Storm" (10% Cost Esclation & 10% Drop in Occupancy)





HFS Income After Debt Service and Capital Expenses ($18,550) ($51,402) ($3,669) ($2,765) $12,597 $526 ($11,173) ($9,015) ($5,413) $1,856 $1,451

Ending Reserve Balance $65,024 $13,622 $9,953 $7,188 $19,785 $20,311 $9,138 $123 ($5,290) ($3,435) ($1,983)


Excess Above Requirement $44,750 ($7,619) ($11,814) ($15,291) ($3,435) ($3,682) ($15,659) ($25,512) ($31,799) ($30,854) ($30,351)

Mitigation: Occupancy - Close Haggett in FY20; rebuild 9-month occupancy over five years








Excess Above Requirement $44,750 $4,404 $5,058 $6,434 $22,947 $27,143 $19,371 $12,705 $8,519 $10,404 $10,607

Mitigation: "Prefect Storm" - Close Haggett in FY20, reduce CapEx by $2.5M; rebuild 9-month occupancy over five years








Excess Above Requirement $44,750 $295 $6,508 $7,864 $24,385 $28,587 $20,822 $14,163 $9,984 $11,876 $12,087

Stress Tests

Mitigations

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UW North Campus Housing Phase IV(b) –

Oak Hall and Denny Field

UW North Campus Phase IV(b) Site Plan

ATTACHMENT 4F-6.4/202-19 2/14/19

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Phase IVB

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Future Phase

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