Greystar is a global, fully integrated real estate development company. Greystar develops, owns, operates, and invests in both its accounts and others’ accounts. Greystar’s products are diversified. We’re historically known for housing, which is the bulk of our portfolio. We also do life science, research buildings, and hospitality.
Most importantly, we focus on doing mixed-use projects and building community. In some instances, those are student communities. In other cases, it’s general public communities. Other times, we help invigorate some knowledge communities by assisting with research buildings and active uses within research parks, such as housing and retail. So, it is a reasonably large company, mostly known for housing.
We have about 900,000 units of housing in our portfolio. On any given day, over one million people live in our communities. Of that, about 10% of our portfolio is student housing, nearly half of which is on-campus partnerships, and the other half is off-campus.
My role within Greystar is to work with our public partners, primarily universities, cities, municipalities, states, and provinces, and try to help them achieve their social goals, which tend to have a real estate component, but it goes beyond just real estate. Real estate is a catalyst for social outcomes and building community.
My work in higher education
I’ve worked in private real estate for about eight years, but before that, I spent 20 years in higher education. I worked at Boise State University and Arizona State University to help them with their finances, investments, and public-private partnerships. We did a conference center and a transit center. We were a partner on those projects with other public entities.
Having been a treasurer for a university, I’m susceptible to balance sheets and credit rates. I was supposed to protect that, which I did.
More on Greystar
At Greystar, we’re in about 35 global markets. Two hundred forty-one markets, as we define them, would be different. We’re relatively new to Canada. We opened up an office here about a year and a half ago. We are currently under construction on some student housing next to the University of Victoria.
We’re also working on other projects in and around Calgary and Toronto. It’s been great to come up here and learn more about development in Canada.
More on P3s
Even though we’ve done 65 on-campus partnerships, if you’ve seen one P3, they’re all incredibly unique. And then the other cliché, sorry to use it, but the most important thing to me is that of partnerships. We very much approach the P3 off the top: what is the outcome? What are the universities’ goals? And what is the realistic business model that can deliver on those goals?
Many of the universities I’ve worked with have the first introduction; they want a building built out of stone so it lasts for a hundred years. The university will say, please give me as much money for the ground as possible, and I would like you to charge the students the lowest possible price.
I’m tasked with finding the business model that makes that work, and the quick conclusion is that it doesn’t. And so, it’s really about resetting those priorities and thinking about what is the most important.
And if it is to have that outstanding sustainability in that net zero building, most people rent. Then we have to talk about what tax incentives or other operational advantages the university can bring. So, it’s focusing on that outcome because these are long-term partnerships, and if you go into this type of project in the short term, we will build and exit it. Good luck! There needs to be more alignment on the ground to ensure that 30 years from now, the project will still deliver those objectives, so finding a business model that works is challenging.
But we like to tell the universities that you’re getting multiple ROIs here. You’re getting an ROI through the ground. You’re getting an ROI through an asset that will either be here or yours in the future. But you’re also getting a social ROI and a programmatic ROI. These things matter, have value, and are more challenging to quantify.
How do you quantify student and community engagement?
Sometimes, universities have excess land and don’t give it to us. We do not need it. Do whatever you want. Please give us as much land as you can. And there is nothing wrong with what universities say.
Much of what we’re seeing in higher education is a widening of the product type universities seek to engage the private industry for. More and more universities are turning to the private industry for everything from food service, student housing, research parks, and research buildings. We’re seeing universities turn to the private sector with their energy districts.
For many of these things, the universities turn to the private industry to access outside capital. I struggled with this while running our real estate program at Boise State University. The state prided itself on giving us one building every ten years.
We would wait, prioritize it, and imagine all the research buildings, houses, and parking garages for several years. Everyone asked for access to this limited capital, and one or two would get funded every few years.
From my higher education experience, universities initially went to private enterprises in some instances for access to capital to accelerate those projects, and that is a benefit. But now that they’re seeing what some of the private industry’s expertise can bring. Many universities may even need a hundred thousand square feet of research space. Well, they can build 100,000 square feet of research space on their balance sheet or go to the private industry and say, we need 100,000 square feet of research space, so build us 200,000 square feet.
The university will walk you 100,000 square feet, but you, the developer, add value by taking risks and helping recruit private industry partners to be in that building. And, to have those creative collisions occur, the university will often double its density by attracting people and private industry.
Another example is when we worked on student housing for a law college in San Francisco. This law college has about 900 students. They wanted about 700 beds of student housing. And, again, from an investor standpoint, 70 percent of all students who live on campus have a weak investment thesis. But to get this project to happen, the university said, look, we want to be an open ecosystem for the entire community. So they got, in addition to this law college, UC San Francisco, a medical college, their department, and then UC Davis.
But they could create this consortium of other institutions where they had a scale project. So we were able to do this for a small law college, and investors were able to get comfortable with $300 million investment. This mixed-use village had about 600 housing units, offices, retail spaces, classrooms, and event spaces.
Cost of capital options in the P3 relationship
P3 are all very unique. But broadly, the cost of capital is a significant factor in all these projects. The risk measurement is the cost of capital or the interest rate. The universities can participate to help move that pendant. So for those universities that want absolutely nothing to do with the project, entirely arm’s length, there will be a cost of capital where the developer says, I realize I have 100% of market risk.
This is a stand-alone private project. Then you have the complete other end of the spectrum, where maybe the university is saying, we’ll insure your complete project, or perhaps we’ll insure your master lease. That ultimately de-risks much of that project, where we may have to take risks to maintain the building.
I have seen in this market that the cost of capital swings, you know, easily 300 basis points depending upon the level of involvement. And, while we’re an investor in all of our projects, we also have other investors who come in with us. We’re always looking for outside equity. But we always look for that equity that aligns with the principles and the transaction structure. We seek long-term infrastructure, social infrastructure funds, and pension funds for credit enhancement.
If the university is very much arm’s length, we know those funds will not get the de-risking they’re looking for. And we have to look more toward a core product.
University credit enhancements
The types of credit enhancements will be on the university’s balance sheet and credit rating because those are hard firm commitments, some of them concrete financial commitments.
Then, you have soft commitments, where the university supports the project in every way they can, shy of cutting a check to support the project.
Applications may come through the university. Collections can be done through the student payment systems. The university isn’t providing any onerous guarantees on occupancy. We’ve seen some universities say, “Hey, we will mass release that project, three to five years, which gives you and your investors the assurances the project’s going to be delivered and stabilized and up and running, and it’s up to you to run it and do it to make sure the students want to stay and re-up.”
For example, we have a project with the University of California, San Francisco (UCSF). They’re master leasing 35% of the beds in this project. We structure that commitment because if the project is less than 35% occupied by UCSF students, UCSF will pay the gap. So if 35% or more of the students in the building were from UCSF at the end of the year, there’s no obligation, and it’s great.
ESG & Sustinability
As developers, we start with the strategies that have the best ROI. We’re doing much more solar. We do battery backups. The solar is working at night as well. We’ve done geothermal.
We’re always looking for things with both an ROI and sustainability. But at the end of the day, we commit to our on-campus partners to hit a sustainability goal. We do what we can to get through the ROI, but there are some instances where the payback isn’t there to pursue the ESG-related project.