Developing the Capital Plan is only Half the Battle

Transcription

1 Western Connecticut State University Western Oregon University Westfield State University Widener University Williams College Worcester Polytechnic Institute Worcester State University Xavier University Yale University Developing the Capital Plan is only Half the Battle OACUBO 2018 Adam Gogolski, Account Manager, Sightlines April 27, 2018

2 Agenda and Introduction Challenges Facing Higher Education What happened to put us in this position? What are forward-thinking institutional leaders doing to turn it around? Discussion Adam Gogolski Account Manager Worked on over 80 campuses in 25 states during his 7-year tenure at Sightlines 5 of which were flagship institutions, 2 in the Big Ten Graduated with BS degrees in Industrial Engineering and Economics from the University of Pittsburgh 2

3 Higher Education is in a Financial Crisis Percentage of Chief Business Officers saying media reports that higher education is in the midst of a financial crisis are accurate 56% 63% 71% Source: Inside Higher Ed, 3

4 Challenges Facing Higher Education Too Many Fires to Put Out Pressed for Time and Bandwidth Trying to Balance Strategic Initiatives with Current Challenges Difficulty Measuring Progress More Challenges than Funding Changes in Enrollment Changing Space Needs Limited Operations (No economy of scale) Missing Link Between Facilities & Finance Separate Data Sets, Disconnected Networks 4

5 How Do We Protect ALL of Our Assets? Average Endowment Average Building 5x Replacement Value 5

6 What Does Sightlines Do? 5 Canadian provinces 90% Member retention Alaska California Florida Hawaii Maine State & University Systems Massachusetts Minnesota Mississippi Missouri Nebraska New Hampshire New Jersey Ohio Pennsylvania Texas Washington 43 States+DC 170 New members since ROPA Members 450 Colleges & Universities 6

7 % Growth Students are Coming Back to Higher Ed 12% Space Growth vs. Enrollment Growth 10% 8% 6% 4% 2% 0% Fiscal Year Space Growth Enrollment Growth 7

8 % Growth since 2007 Not All Institutions Have Been Impacted Evenly 16% Space Growth vs. Enrollment Growth Baccalaureate Master s Research 14% 12% 10% 8% 6% 4% 2% 0% -2% Fiscal Year Space Growth Enrollment Growth 8

9 % of Constructed Space Buildings Were Constructed in Two Eras 12% 10% 8% 6% 4% 2% First Wave Driver: Enrollment Growth Second Wave Drivers: Program and Enrollment Growth 0% 9

10 % of Constructed Space The Major Funding Challenge is Still to Come 30% Wave 2 Needs 25% 20% Wave 1 Needs 15% 10% 5% 0% Wave 1: % of total GSF Wave 2: % of total GSF 10

11 % GSF New Construction Projects Have Slowed 100% Renovation Age by Category Baccalaureate Master s Research 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Total Under 10 Total 10 to 25 Total 25 to 50 Total Over 50 Low Risk Medium Risk High Risk End of Life 11

12 $/GSF Operating Resources Have Not Kept Pace with Inflation $6.00 $5.00 Operating Resources by Constituent Group Baccalaureate Master s Research 19% increase over % increase over % increase over 2007 $4.00 $3.00 $2.00 $1.00 $0.00 Daily Service Inflation over this time period is roughly 33.5% PM 12

13 $/ GSF $/ GSF $/ GSF Capital Reinvestment Has Fallen Short of Needs 7.0 Baccalaureate 7.0 Master s 7.0 Research $4.2 $3.4 $ $4.1 $3.8 $ $4.1 $4.1 $ Sightlines Annual Investment Target Actual Institutional Spending 13

14 $/GSF Facilities Needs Have Continued to Grow $ Year Facilities Needs by Constituent Group Baccalaureate Master s Research $ $80.00 $60.00 $40.00 $20.00 $

15 The Question on Everyone s Mind How do we reverse the trend and start making progress? 15

16 Traditional Facilities Assessments go from project list to project selection from the bottom up and without a comprehensive strategy This approach Fails to harness operating knowledge Doesn t tie to mission Ignores financial capacity Project Selection And therefore Technical Assessment Misses opportunities to optimize capital resources 16

17 Experience Tells Us Cosmetic Repair of Student Apartments. Replace air compressors and steam stop valves Bathroom Upgrades Capital Planning is more than just a project list. Replace Doors Upgrade all heat detectors Install new sprinklers 17

18 The Solution Starts with Strong Data How many of you have one or more of the following pieces of data? Facilities condition assessments Campus master plans Internal review documents The optimal solution will turn this Specialized studies (elevators, roofs, etc.) Equipment lists Into This Building drawings 18

19 Begin the Communication Process Trying to compel action through a daunting DM figure does not work. It freezes decision making and compounds the core issue. Institutional leaders need to: 1 Stop the Bleeding Understand the cause of deferral and slow backlog accumulation 2 Make the Problem Smaller Create building portfolios 3 Sustain Impact of Finite Funding Create multi-year plans 4 Mitigate Risk Target capital to reliability, safety/code, critical asset preservation 19

20 A Successful Approach Will Provides a list that is framed and targeted Allows leadership to focus on strategy and outcomes rather than individual projects Encourages a partnership with stakeholders throughout the institutions Allows continual review and prioritization as objectives change 20

21 Why a Portfolio-Based Approach? Not all buildings are created equal Developing a portfolio approach will allow for a focused investment approach based on the Institutional Strategic Direction. Core considerations to the portfolio approach Building Age Building Condition Building Location Institutional focus Academic requirements Student needs Historical Significance Safety/Code requirements Recruitment/Retention Transitional Space Adaptive Reuse Institutional Leaders for buy in and communication Institutional Priorities Building Needs Future Campus Direction 21

22 Proposed Solution Current Challenge Deciding Where NOT To Invest is Critical Full Project Inventory? Project Selection Full Project Inventory Apply Building Portfolio & Timeframe Building Portfolio Process Apply Investment Criteria & Timeframe Multi-Year Project Plan Electrical, Plumbing, HVAC, Mechanical, Exterior, Interior, Safety Geographic, Program, Transitional, & Years Reliability, Asset Preservation, Program, Economic Operations, Safety/Code & Years 22

23 Example #1: Functional Portfolios The Big Problem Total Needs $165.4M Divest Transitional Buildings $35.2M 174,284 GSF $202/GSF Grounds/ Infrastructure $15.3M As Needed Building Needs $114.8M The Manageable Solution Core Academic $34.0M 539,944 GSF $63/GSF Student Life $30.1M 392,533 GSF $77/GSF Residence Halls $21.9M 215,279 GSF $102/GSF Historic Preservation $14.9M 87,281 GSF $170/GSF Campus Perimeter $14.0M 116,172 GSF $121/GSF Institutionally Funded Student Fees Student Fees Gifts Sell

24 Example #2: Vintage Portfolios The Big Problem Total Needs $144.3M Parking $3.9M 1,1M GSF $3.6/GSF Grounds/ Infrastructure $14M Building Needs $110.5M As Needed As Needed Beneficial $41.8M 977K GSF $43/GSF Legacy $29M 574,368 GSF $34/GSF Millennium $28.1M 1.8M GSF $15.5/GSF Transitional $19.5M 240K GSF $81/GSF Rental $7.2M 96K GSF $75/GSF A Targeted Solution Complete Renovation Exterior Renovation Programmatic Stewardship Emergency Reinvestment Only No Capital Reinvestment 24

25 Example #3: Balancing Needs & Program Value Capital Stewardship $214.6M Institutionally Funded Building Needs $770.8M Major Renovation $318.1M Gifts or Fundraising Total Needs $856.3M Grounds $21.9M As Needed Maintain Only $103.5M Limit Capital Reinvestment Infra. and Central Plant $72.6M Transition $134.6M Divest Utility Fees

26 Use Objective Tools to Prioritize Capital Upkeep Stage: Primarily new or recently renovated buildings w/ sporadic building repair & life cycle needs; You pick the projects Repair and Maintain Stage: Buildings are beginning to show their age and may require more significant investment on a case-by-case basis Systemic Renovation Stage: Buildings may require more significant repairs ; large-scale capital infusions/ renovations are inevitable; The projects pick you Demolition/Transitional/ Gut Renovation Stage: Major buildings components are in jeopardy of complete failure. 26

27 0% 15% 66% 0% 100% 0% 7% 45% 35% 100% 86% 100% Show the Relationship Between Needs and Risk Total Need $520M Sample Fund $75M Sample Fund $150M Sample Fund $300M Reliability $75.1M $64.9M $75.1M $15.9M Highest Risk Safety/Code $29.2M $10.1M $29.2M $17.2M Asset Preservation $322.4M $0 $13.5M $14.2M Economic Opportunity $18.6M $0 $18.6M $195,000 Program Improvement $75.3M $0 $13.5M $4.5M Lowest Risk 27

28 Admin/ Other Undergrad Science Graduate Research Leverage Portfolio Priorities for the Plan Undergraduate Admin/Other Classrooms ASABEgIAcPD_BwE Historic Graduate Research Classrooms Historic Science $75M Plan $ 4,809,000 $ 24,020,000 $ 2,932,000 $ 19,860,000 $ 23,379,000 $150M Plan $ 7,648,000 $ 54,761,000 $ 6,855,000 $ 43,585,000 $ 51,550,000 $300M Plan $ 17,396,240 $ 121,779,000 $ 16,231,000 $ 63,621,000 $ 80,971,000 Safety/Code Reliability Program Improvement Economic Opportunity Asset Preservation Safety/Code Reliability Program Improvement Economic Opportunity Asset Preservation Safety/Code Reliability Program Improvement Economic Opportunity Asset Preservation Safety/Code Reliability Program Improvement Economic Opportunity Asset Preservation Safety/Code Reliability Program Improvement Economic Opportunity Asset Preservation ASABEgIAcPD_BwE $- $10,000,000 $20,000,000 28$30,000,000 $40,000,000 $50,000,000 $60,000,000 $75M Plan $150M Plan $300M Plan

29 The Right Data Allows for Complex Analysis 29

30 A Complete Plan Will Articulate the Cause of Backlogs Communicate a Credible Inventory of Need Create a Process; Don t Just Pick Projects Measurable Performance Catch-up vs. Keep-up Understand how underfunding creates backlog Impact of changing campus age. Comprehensive, credible, and flexible Illustrate operations impact Benchmarking for context Building Portfolios reflect institutional strategy Investment Criteria define the investment outcome Timeframe aligns financial capacity to facilities needs. Fact: Never get enough funding Fact: Emergencies arise so contingency management is key Fact: Customer support is important Creating a complete plan will result in action rather than paralysis 30

31 Questions & Discussion 31 31

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