11/11/2009 | By Allen Kenney
With state governments and colleges and universities around the country facing tight budget squeezes, student housing REIT American Campus Communities (NYSE: ACC) has come up with an innovative way to help them keep their development plans on schedule and conserve cash at the same time.
Under the company's American Campus Equity (ACE) program, using its own equity, American Campus takes on the lionshare of the funding for a new development project at one of its client schools. The company bills the program as "the optimal solution for universities looking to develop or sell student housing while preserving their credit capacity to fund core infrastructure."
By using its own equity to finance a major chunk of a project's total cost, schools don't have to borrow heavily to finance the construction, which preserves their debt capacity and enables them to maintain their credit rating. American Campus also forgoes fees on its ACE projects.
In the end, the arrangement means that American Campus is the school's lone financial, development and operating partner. The universities, in turn, retain their ability to borrow as a way to finance academic infrastructure development.
One of the company's flagship ACE properties can be found at Arizona State University in Tempe. American Campus' Vista del Sol, an on-campus housing complex, opened in the fall of 2008. In October, a second phase of the project was completed: a brand new $126.5 million campus for students of the university's Barrett Honors College. A third phase of the $350 million project is planned, at which point American Campus expects the new facilities will offer up to 5,000 beds for ASU students.
"With states not having the capacity to fund all of their capital needs, it has created an opportunity for us," says Bill Bayless, American Campus' president and CEO. "It's all on our balance sheet for the benefit of the institutions."