With the new academic year underway, college and university administrators face new challenges each day in their quest to ensure the health and safety of students, faculty, and staff on campus. These challenges range from managing the logistics of virtual learning environments and managing community relations to enrollment challenges. The pressures are mounting—and so is the financial impact.
A survey by Inside Higher Ed and Hanover Research revealed that only 27 percent of college and university presidents expect investment and/or endowment income to increase. Regaining financial stability in the face of rising operational expenses and declining tuition revenue will require creative strategies.
To thrive, institutions must explore every avenue to reduce costs while sustaining the educational mission. As one of the largest expense categories in higher education, campus facilities are a potentially powerful source of savings—and revenues—in today’s challenging fiscal environment. As you address the challenges of operating in the post-pandemic era, consider how you can leverage your facilities in new ways to support your bottom line while also enhancing the campus experience.
The following are 16 levers you can pull to drive costs out of your land and facilities operations, and even create new revenue streams. It is possible to pursue some short-term strategies and tactics that will help cut costs relatively quickly, as you explore long-term strategies for sustained savings and revenues. Coupled with a holistic view of your facilities, the innovative management practices you adopt today will help you reduce long-term operating costs and conserve resources toward your mission.
The following are practical steps you can take now to reduce your facilities costs:
1. Strategically plan and take inventory of your space to uncover underutilized land and buildings.
How much and what kind of space does your institution need for full operations? Consider your current space inventory in light of enrollment trends and academic programming. By understanding how much space you actually need, you can uncover opportunities to improve space utilization or dispose of excess land and buildings.
2. Analyze facilities data to identify inefficiencies.
Your facilities and land can contain hidden costs beyond the mortgage or lease payment. Analyzing your portfolio data, including facility management, operating, and maintenance costs, will help you uncover inefficiencies and savings opportunities. For example, learning that a building consumes an above-average amount of energy should guide you in determining the root cause of the waste and taking action.
Your portfolio data will also be invaluable for campus management. With a better understanding of the space you have, you’ll be better equipped to determine which buildings should remain in use when campus population levels are reduced. You may also realize cost savings by pausing building operations in facilities that are not currently in use.
3. Dispose of surplus or underutilized land or facilities.
A review of your portfolio will likely reveal underutilized buildings—those facilities in which one or two floors are occupied while others are barely used. Rather than shoulder the carrying costs indefinitely, you may find opportunities to lease or repurpose these assets for more productive use.
4. Consider a sale/leaseback.
For some properties, such as a university-owned medical office building, a sale/leaseback may be a viable option. This allows you to sell the property but lease it back to better deploy capital where it is most needed. Depending on the property type, condition, level of occupancy, and other factors, a property may appeal to other investors.
5. Consolidate and repurpose administrative space.
Administration consumes approximately 30 percent of the average college or university’s facilities portfolio. The question is, do you need to house all administrative activities on campus? An analysis of off-campus options may reveal cost-saving opportunities while freeing up campus facilities to be used for learning. Changing ways of working have led to a surplus of office space in many markets, and many landlords are willing to negotiate.
6. Understand how remote working affects office use.
Hybrid work has reduced the office space needed for many colleges and universities. As you consider how best to reduce administrative facilities costs, evaluate whether permanently adopting remote working policies can enable you to retain and reduce your space. Long-term adoption of remote working for administrative staff could, in turn, reduce your office costs by as much as 10 to 20 percent.
7. Pause operations in temporarily unoccupied buildings.
Given the rise in virtual learning, many campus buildings will likely see reduced utilization for the time being. Data-driven analysis can help you determine whether buildings should be fully closed, and how to optimize facility management to reduce operating costs of unused buildings while preventing long-term operational issues.
8. Leverage variable labor to manage capital projects.
Adopting a variable labor model for capital improvement work can minimize overhead and allow full-time employees to focus on delivering complex core services in the face of severe budget constraints. As projects ramp up, a private sector project or program manager can help your organization procure qualified contractors, monitor contracts, and manage capital projects in a cost-efficient way when projects are complete.
9. Reduce facility management costs through outsourcing.
Facilities management (FM) outsourcing can be a powerful means of sustaining savings while improving service and enhancing the campus experience. Top FM service providers can typically reduce your long-term operating expenses by anywhere from five to 30 percent through operational efficiencies in the management of energy, workflow, and supply chains as well as workforce administration. Spalding University, for example, reduced operating expenses by $100,000 annually within the first 60 days of partnering with an FM service provider.
Typically, a qualified FM service provider will seek to ensure continuity by hiring your personnel and then training them in the latest campus real estate technologies and practices.
10. Uncover hidden operations and maintenance costs with a facilities health check.
Even if your facilities appear clean and well-managed, the impacts of deferred maintenance may be mounting behind the facade. Periodically checking the health of your properties can help you avoid unpredictable repairs, reduce replacement costs, and keep equipment running more efficiently. When performed by an external service provider, a facilities health check provides an unbiased assessment of your organization and identifies ways to improve performance.
11. Establish a chargeback policy.
By analyzing the usage of your administrative spaces, you can establish a data-driven policy requiring departments to pay for their administrative space. Once implemented, internal chargebacks ensure that departments occupy only the space needed—leading to more efficient use of your space overall.
12. Prioritize capital projects with data-driven planning.
You must determine a future vision for aging, underutilized, or closed buildings.
Capital investment needs will inevitably continue to accumulate. Through a comprehensive facility condition assessment, you can gather data about the conditions of your grounds, buildings, building systems, and maintenance needs. Analysis of that data will reveal whether it makes more economic sense to pause building operations and renovate or demolish facilities. You can also create an objective, data-driven plan that prioritizes capital investments and helps reduce the expense of last-minute emergency repairs.
13. Create an energy partnership.
A renewable energy partnership can significantly reduce your energy costs and carbon footprint—without investing scarce resources upfront.
In a typical partnership, the energy provider funds the installation of solar panels or other energy technology and provides the engineering resources to distribute the power to the central plant. In exchange, the institution commits to a long-term power purchase agreement.
Some colleges and universities also are exploring public-private partnerships (P3s) to relieve the burden of operating aging, inefficient central plants. Typically, the private sector partner will replace, operate, and maintain the central plant while selling power back to the college or university. Over time, the institution benefits from improved energy efficiency and lower energy costs.
14. Creative strategies for revenue- generation and project finance.
While cutting costs is essential to restore financial stability, generating new revenue streams can help provide sustained financial flexibility. Many colleges and universities own underutilized land and facilities that can potentially be transformed from financial burdens to revenue-generating assets that also serve the campus and even the general public.
15. Revitalize underutilized land through ground leases.
Whether it is a vacant piece of land, an older building with significant repair expenses, or an off-campus student housing complex, a real estate asset can become a burden. While an outright sale of the property or self-financed redevelopment may be the first option that comes to mind, a “ground lease” of the land to a developer can potentially generate long-term rental income and tax revenues. In exchange for occupying the land, the developer typically pays not only for facility design and construction but also for financing, operating, and maintenance costs, including property taxes. Ground leases can be used for various commercial property types—including office, incubator, medical office, hotel, retail, or multifamily housing—to generate revenue streams and meet a market or community need.
16. Fund infrastructure with public-private partnerships (P3s).
Even within budget constraints, your campus will still need capital investment. One strategy for financing those investments is to create long-term P3s. They can be used to fund large capital projects, transfer risk to a private sector partner who assumes responsibility for long-term maintenance and capital renewal, or even create a new revenue stream from a university property—such as a student apartment facility.
P3s can fund a wide range of higher education projects, from student housing and dining facilities to innovation hubs and even central plants. The University of California, Riverside created a P3 to bring 800 new beds and a dining hall to campus. Meanwhile, Philadelphia’s Drexel University partnered with Brandywine Realty Trust to create Schuylkill Yards, a $3.5 billion master-planned development on university-owned land, which will include residential, office, retail, and life science space. Georgia Tech partnered with Portman Holdings and Next Tier HD to finance, design, and construct the Technology Square innovation center, which has attracted corporate partners like Boeing and Panasonic.
Position your institution to thrive—today and tomorrow
Reducing costs and generating new revenues from your facilities assets can make a valuable contribution to financial stability. You can bring new efficiency to your facilities operations while improving the quality of the campus experience. As financial pressures continue, now is the time to explore innovative facilities approaches that will improve your financial flexibility and position your institution to thrive into the future.
Reginald D. Adams is vice president of operations—education within JLL’s Education practice in Washington, D.C. He can be reached at [email protected]. Nina Farrell is a vice president with JLL’s government, education, and non-profit advisory practice in Austin, Texas. She can be reached at [email protected].
