Matt Dull, assistant vice chancellor for finance and operations, shares updates concerning construction projects on Appalachian's campus. Matt is joined by Jeremy Doss, senior vice president of RISE, who shares information about his company and handles a few FAQs regarding the residence halls project.
Dave Blanks: Hi, folks. This is Dave Blanks from University Communications back once again with a Campus Construction Update, joined by Mr. Matt Dull. Hello, Matt.
Matt Dull: Hey, Dave.
Matt Dull: And we're not alone today. We have a guest.
Matt Dull: We are not; we have a guest today. I've brought with me Jeremy Doss from RISE today, and Jeremy's been working on our project since the very beginning.
Jeremy Doss: Good morning, everyone. Glad to be here.
Dave Blanks: Hey, Jeremy.
Jeremy Doss: Thanks for having me.
Dave Blanks: Yes, thanks for coming by and spending some time.
Jeremy Doss: Absolutely.
Dave Blanks: So, now, I guess what we'll get into would be a little bit, Matt, of the updates, but after that we're going to talk to Jeremy about RISE just to kind of let people know a little bit more about the company.
Matt Dull: Yes, that sounds great.
Dave Blanks: OK cool. So, give me some updates, Mr. Matt Dull.
Matt Dull: Yes, not a lot of new updates from this week. Obviously work's still going on on the site for our parking deck. We're completing work on the foundations and all the cast-in-place walls over the next week or two so that we can have all that finished up by the end of March. That's a big component of being able to bring in all of the precast structure in April, so we've got to get all that work done. The Choate team is working nonstop. Every time they have a dry day or a warm day to be able to do work, so they're moving along quite well on the project. For the building sites, we're continuing to do site clearing. So again, we're moving asphalt and curbing and sidewalks, and really trying to get our building pad in place for building 100 first. Trying to finish that up over the next week to two weeks. And —
Dave Blanks: And 100 — is the one that's … ?
Matt Dull: 100 is the one that's closest to Jack Branch Drive, Stadium Drive, Trivette Hall.
Dave Blanks: Right, OK.
Matt Dull: In what was Duck Pond Field.
Dave Blanks: OK, previously Duck Pond. OK, all right. So any more updates, Matt?
Matt Dull: Not any big updates. Still again, just trying to get the building site ready to start the construction on building 100 and 200.
Dave Blanks: OK. Let's talk with Jeremy a little bit. So, once again, Jeremy, thank you for coming to our studio. Could we start out, maybe could you tell everyone a little bit about yourself?
Jeremy Doss: Sure. Thanks for having me, guys. My name is Jeremy Doss. I'm with RISE Real Estate. I'm actually senior vice president with RISE. I have been with the company since back in 2002. Really shortly after graduating from college, I came on full time, actually did an internship with RISE in summer of 2001, so really all I know is student housing, development design and construction. I've seen the market really evolve and change over these — what? — 18 years or so. RISE Real Estate is a Georgia-based company. We're actually headquartered down in Valdosta, Georgia, which is a smaller town near the Florida line.
Dave Blanks: It's hot.
Jeremy Doss: It does get a bit warm, and we've seen our fair share of rain here the last six months, but I don't believe that evaded you all either.
Dave Blanks: No, it has not.
Jeremy Doss: Nor the construction work that started early on the parking deck. But, we are from Valdosta. We've been doing this specialized student housing on-campus type development for over 20 years now. Back in the late '90s, an evolution began where, essentially, a developer like RISE would come to a university, such as App State, and offer a turnkey plan where a single contract to build an auxiliary facility. Usually housing, but we've also done parking decks, that's what we're doing here as well as some dining halls. Anything that can generate some revenue on its own. And through that, we put a team together that best fits the opportunity and the challenge.
Jeremy Doss: With this opportunity, here, when we approached this project here at App State, it was a national, competitive process that went through, so we were very fortunate to be given the nod by App State probably about a year ago, right now. With our conceptual design and our approach and everything. On our team, we did have Choate Construction Company, who we've worked with for years, have a large presence and office out of North Carolina, as well as Atlanta. Our architectural partners are Niles Bolton and Associates out of Atlanta, who's one of the leading architectural firms in student housing in the country, and paired them with Jenkins-Peer Architects out of Charlotte, who has extensive experience in the state of North Carolina, as well as some experience here on campus.
Jeremy Doss: So, it really brought all of those things together, and we had additional team members to come up with our conceptual plan. But let me back out and tell you a little more about RISE. We have been in the business since late '90s. We've done just under 50,000 student housing beds to date. Most of those are on campus, direct affiliation in a partnership with universities, with the balance of those being off campus but purpose-built for students. All of that totals a little over $3 billion in development value. We're over, approximately, we’re over 80 projects; you could call it 85, just depending on how you call a project a project.
Jeremy Doss: We've been doing this for quite a while. We've seen the industry really evolve over the years. In the early days, we didn't see programs such as what App State is doing here and many other institutions around the country are doing. It was really a traditional means of getting projects done on campus back then, where you would hire an architect, work through a design process over a period of time and then put that design out to the construction markets to bid. You've got so many things moving around meantime: the markets are shifting, designs are changing, there's a disconnect between the architect's design and the contractor's bid. So that's really what grew our industry in being a single source. At the end of the day, if there's a disconnect between the design and the pricing the contractor, somebody's got to take the responsibility of that. At student housing, you cannot be late. You're going to have these beds full months in advance, and school's going to start in that fall semester, and if the kids come to campus and they're not complete, we've got to put them somewhere and that's not cheap.
Jeremy Doss: And so, knock on wood, to date, we have never delivered a project late, and we'll do everything that we have to do to deliver a project on time. And as, I think we've seen here in the last couple of weeks since we started construction and closed the full financing, we've really been getting after it and Choate obviously understands the importance of the schedule and the sequencing and every week and every day counts. If you've got great weather, you better make hay, because you never know when rain's going to come in.
Dave Blanks: Absolutely.
Jeremy Doss: There's a run down.
Matt Dull: So Jeremy, why don't you tell folks what RISE's role will be in this project and how that compares to other projects you do?
Jeremy Doss: Sure, sure. Thanks, Matt. We serve as the developer here on this project, as all the projects we pursue and partner on, and as the developer for the project, we are the single contractee with the university. We bring a turnkey approach, turnkey team to the university and the partnership in that Choate Construction, in this situation, is under contract with us. We hold the contracts for all the architecture and planning principles, the engineers — pretty much everyone involved. When we sign the contract and we're hired by App State, we are the ones that are guaranteeing the schedule, the budget, the design will match the budget and that App State will be happy and pleased with the end result at the end of the day. So that's really just a single point of contact, single contract, the buck stops with us. It's pretty much RISE's roll as the developer.
Matt Dull: One advantage to Appalachian State, who's the beneficiary of this project, is that you've got one point of contact. So that one point of contact is working with all the architects, all the engineers, they're ultimately responsible for staying on budget, staying on schedule, and that's really nice for us as an institution; that we've got one group that's really helping coordinate all of that versus having to coordinate with the architect, and then separate from the engineer, and then separate from the contractor, and it really allows one group to really be in charge of all of these different parties to get the project done on time and on budget.
Dave Blanks: So, Jeremy, how does this particular project work? And, Matt, you can speak to this too. Does RISE kind of own it, and then, at some point in time, hand it off to App?
Jeremy Doss: As part of each development team I think that pursued this project you had an ownership structure proposal. We are utilizing tax-exempt bonds, that means it's a not-for-profit, and you need a not-for-profit owner. Now, the university obviously is a not-for-profit, but what we're trying to do with these projects is finance and build them on their own merit, on their own demand. So, there was a third-party market study done that determines how many beds of demand is here at App State. Obviously a lot of this is replacement housing, so there is demand, but then comes in what is the unit configuration and what is the price point for that configuration in that market study? So that demand has to be proven up. Then we understand what the unit's going to be, what the price point is so you can then determine what's your overall revenue will be, which determines what you can build.
Jeremy Doss: But, the project, in itself, then stands on its own, but we do need a nonprofit owner. And as part of our proposal, we proposed Beyond Owners Group, who we had worked with before and we think a lot of, and they're very knowledgeable about student housing and about operations, and asset management, and long-term management of student housing. So, they actually came in and serve as the owner of the improvements of the housing for the term of the financing. So the rental rates go on to pay off the bonds that finance the housing. Beyond Owners Group serves as the owner of the improvements as those rental revenues are paying off the bonds. Once those bonds are paid off, then the facility reverts back to the ownership of the university. And that's all done via a ground lease, where we just wrap basically a ground lease around the base of these buildings, around these improvements, and transfer them over to the nonprofit's ownership during the term of the financing.
Dave Blanks: So, when all is said and done, at least when the first building is completed, the housing, will we be doing the hiring for housekeeping, or is that going to be something that you all would cover? Are our people going to be doing it? Can you speak to that?
Matt Dull: Yes, that's a great question. I'll take that one. The university is in the role of operator of these facilities. So, in this structure, you have an operator; that's the person who's cleaning the buildings, doing the res life programming, it's the group that's doing some of the maintenance, the day-to-day maintenance of, “Hey, this light bulb went out, our filters need to be changed in our HVAC units.” Our staff, Appalachian staff, will be doing that. So, university's operating that on behalf of the project. We are in a contract with the owner, which is Beyond Owners, to do that work as the operator. Beyond Owners, who is the owner of the actual improvements of the buildings we're putting on these sites, they're role really is long-term asset manager for the project. So they're thinking about and helping us plan for things like roofs, HVAC systems, bigger systems that are a part of these buildings, and making sure that they're setting aside money through the life of this project, there's money available when these bigger systems need to be replaced, because those are expensive items that we really need to have a financial plan for.
Matt Dull: So as the owner, they're responsible for really helping us put that financial plan together for those larger system replacements, and also helping us find the best price, if you will, for doing those replacements. And so, they would be looking at national contracts and trying to figure out the best price for doing things like roof replacements or roof repairs, elevator maintenance, those kind of bigger building system things that they don't necessarily need everyday maintenance or everyday hands on. And so, it makes more sense for us to allow this third party, which is Beyond Owners, to really take care of the management of those bigger systems. Most of those things we actually have an outside contract with to manage those parts of our buildings right now, anyway. So we would go out and hire our own roof contractor; we'd go out and hire our own elevator maintenance person. So, from outside of the university right now, with all of our buildings. This is very similar structure with these buildings as we currently have with our housing on campus.
Dave Blanks: Got you, OK. So, is it a possibility that Beyond Owners, who is currently the owner, could sell the project and they could move on, and then we could be ... I'm not sure if stuck with is the right term, but we could be with somebody who is not Beyond Owners? Is that a possibility, and I guess, Jeremy, maybe you want to speak to that?
Jeremy Doss: Sure, that's a great question. And I mean, this is a, like I said, a tried and true and proven process that a lot of institutions across the country are taking advantage of and having this third-party owner that almost separates the debt away from the university. It allows the university to free up their ability to finance libraries and classrooms and other things that don't have direct revenue tied to them. The project's setup to be self-sustaining. Like I said on the market study, you have to have demand, you have to match that. We packaged this entire project up with information on App State, enrollment information, where's the project location? It's obviously a core campus here. What's the demand model? What's the unit type, the rental revenue? Basically the investment plan, that was taken out to the investment markets by RBC Capital Markets, our investment banker on the team, another component of our team, and very closely underwritten by these markets. They want to know exactly, hey who's the owner? Well it's Beyond and here's what sets them apart. Here's why they're going to be a great owner.
Jeremy Doss: There's all types of safeguards within these documents that says, “This is not going to change. Here is the look ahead, here's your 38-year, 20-year investment period that you're looking into.” So, no, Beyond couldn't say, "Hey, you know we're getting out of business. We're going to turn it to XYZ." University is in control there, basically, of anything were to ever happen to the nonprofit owner. There are safeguards in place for the university could go through a process and determine hey, is this something we want an affiliated foundation to take? Does that mean it's going to be closer to being on our books? Who do we want to look at other national 501(c)(3) nonprofits? There's a handful of them, and they're all very good at what they do. There's many safeguards there that should give peace of mind.
Jeremy Doss: And like I said, the bonds were sold, it was a great credit rating on this project, a great cost of capital as far as a low cost of capital for the financing value, but these bond investors understand how safe this project and stable this project will be for the full term I think is the best way to explain it.
Matt Dull: And Jeremy, correct me if I'm wrong. I mean these bonds were sold as tax-exempt bonds.
Jeremy Doss: That's correct.
Matt Dull: It's not like you could go out and have a for-profit owner all of a sudden own these buildings.
Jeremy Doss: No, no way. They're tax-exempt bonds, so it has to be a tax-exempt purpose. Its educational purpose maintains that, so really no one could live in this facility outside of university-related folks that have that educational, tax-exempt purpose.
Matt Dull: Yes, if anyone in this project would be most interested in buying out the project or buying out that owner, it probably is the university. After about 10 years, we'd have that right to go in and buy out those bonds, and if the university felt like it had the debt capacity to take that on and wanted to use one of its affiliated foundations like the Appalachian Student Housing Corporation, it could go out and purchase the bonds and buy out Beyond Owners. That's probably the most likely scenario of any of the scenarios that might play out in a deal like this.
Dave Blanks: We will continue this conversation in the next Campus Construction Update. Matt and Jeremy will cover why Appalachian State chose to go with RISE and why App was a good fit for RISE. Yes — what did we like about each other? Also in the next episode, we'll cover some projects that are similar to RISE's work at Appalachian. Actually, they've worked with another school in our conference. That's all coming up next time on the Campus Construction Update. I'm Dave Blanks. Thanks very much. Talk to you soon.