“I would say that in terms of the size of the deal and the number of campuses involved, both of those things are definitely precedent setting,” said Matthew Nichols, bond counsel for the University System of Georgia.

BRADENTON, Fla. - Corvias Campus Living completed a deal to partly finance a 65-year pact with the University System of Georgia that is one the largest-ever student housing privatizations.

The deal marks the final step of the first phase in the USG Board of Regents' initiative to provide alternative financing for student housing at nine campuses, a strategy that eventually will expand to all of Georgia's 30 public colleges and universities.

A dozen life insurance companies invested in $548.3 million of privately placed taxable bonds issued on May 14 by Corvias Campus Living, a development and property management division of the privately owned Corvias Group, headquartered in East Greenwich, R.I.

Holland & Knight LLP was legal advisor. Morgan Lewis & Bockius LLP was the bond investor's counsel.

The bonds, which mature in 2050, were sold at an all-in rate of 5.3% by Goldman Sachs.

"The strength of the project drove considerable investor interest and this competition allowed us to keep rates low," said Jim McCurdy, director of finance at Corvias Group.

Bond proceeds are being used to assist in the implementation of the 65-year public-private partnership between Corvias and the USG, providing development, construction, management and long-term maintenance of 3,753 new beds and 6,195 existing beds at nine campuses.

Proceeds will also defease about $300 million in tax-exempt debt issued for student housing projects at some or all of the nine institutions.

"This agreement marks the first time that a state system has privatized student housing across a portfolio of campuses," according to Corvias. The model can easily be replicated, the firm added.

The May 14 offering was upsized to $548.3 million from the $517 million anticipated last fall when the P3 agreement between USG and Corvias was signed.

"The higher capital raised was a result of some agreed-upon additional scope and a change in structure," McCurdy said.

USG bond attorney Matthew Nichols, a partner at Sutherland Asbill & Brennan LLP, said Georgia's deal could be a model for other institutions due to its scope, even though some people have compared it to the University of Kentucky's privatization several years ago.

"The University of Kentucky is one that people have looked at, but that's primarily all one campus," Nichols said. "I would say that in terms of the size of [Georgia's] deal and the number of campuses involved both of those things are definitely precedent setting."

Georgia's initial transaction involves "a much bigger portfolio to manage and each institution has different needs," he said.

Nichols also said the Board of Regents was satisfied with the May 14 transaction though it was complicated by the fact that State and Local Government Series Treasury securities could not be obtained to establish escrow agreements for the defeased bonds because the Treasury Department closed its SLGS window on March 13, Nichols said.

While obtaining bids for securities on the open market required more paperwork, the USG board was "happy with the results," he said, adding that the deal was sufficiently sized that it got good attention from bidders.

Nichols also said that the Board of Regents did not retain the right to approve Corvias' financing; however, the board was satisfied that the borrowing complied with the obligations under the P3 agreement.

Over the life of the P3 more than $8 billion in ground rent, contingent rent, retained services, and reinvestment funds will be returned to the BOR, and "every bed will be renovated and/or replaced multiple times," said Kurt Ehlers, managing director of Corvias Campus Living.

"Unlike traditional developers, who typically retain a large share of cash flow for profit, Corvias earns only negotiated, performance-based, fixed fees," Ehlers said. "This mutually aligns partnership interests and allows Corvias to return any additional cash flow to the reinvestment reserve where it benefits the campus."

In addition to contingent rent, Corvias will pay a retained services fee to support the management of residence life services such as social and educational programming, security, and room assignments.

"About 70% of student housing nationwide is more than 25 years old, and most of it hasn't been properly maintained," Ehlers said. "Establishing a reinvestment reserve solves that problem by providing funding to ensure that student housing is in as good condition at the end of a long-term partnership as it was on the day it was built."

The USG concession includes housing and related services at Abraham Baldwin Agricultural College, Armstrong State University, College of Coastal Georgia, Columbus State University, Dalton State College, East Georgia State College, Georgia Regents University, Georgia State University, and the University of North Georgia.

Groundbreaking for new housing has already taken place at six of the nine campuses in the P3 concession, which allows the Board of Regents to implement a quicker, more efficient way to move forward with student housing projects than previously possible, according to USG associate vice chancellor for fiscal affairs Susan Ridley.

"We're looking forward to expanding this across all of the institutions in the system," Ridley said at Georgia State University on May 14, where she attended the groundbreaking for a 1,100-student residence hall and dining complex.

When the Board of Regents launched Phase I of its initiative last November, its scope was seen as potentially the "most ambitious of any P3 awarded for student housing in the U.S.," said Jason Taylor, vice president for student housing advisory services at Chicago-based Scion Group LLC.

"The deal may be most notable for including campuses where the private market didn't believe new student housing development would be sustainable on its own," Taylor said at the time.

"Having the backing of the state university system could tip the balance among debt capacity, student demand, and operational control to make it work, but whether the arrangement successfully delivers on its ambitious goals will be heavily scrutinized by the higher education, real estate development and investment communities in the coming years," he said.

McCurdy said that Corvias' financial model is highly adaptable and can be tailored to fit the specific needs of each institution.

"The USG partnership has received significant attention within the student housing industry because of the significant benefits it presents as well as its transformative approach to a challenge that is nationwide," he said. "Among these is the reinvestment fund which will amount to $2.6 billion over the life the partnership, enabling us to renovate and upgrade each bed multiple times."

The long-term facility management agreement will ensure that there is no deferred maintenance.

"When you think about the traditional approach to student housing where developers pocket a large share of the cash flow, this is a true game-changer," McCurdy said, adding that the firm is in discussion with several institutions interested in replicating Georgia's model.

Nichols said the first phase of USG's housing privatization effort required a "lot of hard work," but the Board of Regents anticipates moving forward later this year with privatizing housing at additional campuses.

"I think it's being watched by a lot of folks in the industry," he said. "I'm ready to get to work on the next one."

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