The LSU Foundation: Nicholson Gateway Development
A unique path to an unprecedented project.
When the LSU Foundation decided to launch its first public-private partnership project, it did so on a grand scale. After relocating and replacing its old baseball stadium and demolishing some 1960s-era cinderblock apartments, Louisiana State University was left with a 28-acre tract of land located in a high-profile spot at the entrance to campus. LSU invested in developing a master plan to use the space for an extensive 1,550-bed student housing program, complete with student-focused retail and an 800-spot parking garage. The project would address the university’s current housing shortage. At the same time, the location on Nicholson Drive—the most direct route between LSU and downtown Baton Rouge—would allow the project to serve as the new gateway to campus.
But making the plan a reality was going to be a challenge. First, the university had an already aggressive timeline with plans to open the project by August 2018. Second, the project represented the single largest development undertaking in the university’s history. It was simply too complex and too large an endeavor to go the traditional state appropriations route or to use the university’s funds. For a program of this magnitude on this aggressive of a timeline, the university decided to give serious consideration to a public-private partnership.
The LSU Foundation engaged CSRS in partnership with Brailsford & Dunlavey (B&D), a national program management firm, to work as development advisors to oversee the P3 and move the project forward.
CSRS and B&D came on board in April 2015. Despite wanting to get an RFP out to private development partners as soon as possible, the university took its advisors’ collective advice and invested the time to better define the project’s master plan before issuing an RFP.
“The foundation has already invested significantly in its master plan. But we asked them to take three months and really define this project thoroughly,” says then Project Manager Chris Ferrari. “We wanted to mitigate the risk for both the foundation and the potential developers by providing as much detail as possible around the project requirements, site issues, existing infrastructure, and restrictions.”
When the request for qualifications was published in July 2015, the positive response from the development community made the effort well worth it. The foundation received 10 responses from highly-qualified firms. “Now the leverage was in the foundation’s court to negotiate the best deal,” says Ferrari.
With the help of CSRS and B&D, the Foundation narrowed down the responses from ten to four, then from four to two. Next, the Foundation took its development advisors’ advice again, and before making its final selection, it engaged the two finalists in a unique two-month competitive negotiation process to begin addressing the project’s challenges.
“We wanted to see what it was really like to work with these developers, how they would interact with the entire team, and how we could solve problems together.” – Chris Ferrari
Each of the finalists engaged in over 16 hours of direct interaction with the LSU Foundation team before the project management committee unanimously selected RISE: A Real Estate Company as the master developer. “This engagement allowed us to establish relationships and trust along with a well-thought-out plan for project design, construction, scheduling, and cost before entering into the final contract with the developer.”
While the idea of a public-private partnership has been around a long time, it was a first for the university and the LSU Foundation. This project also represents one of the largest P3 arrangements in the country. It is financed through the issuance of $235 million in a mix of taxable and tax-exempt bonds, providing an opportunity for the investment community while eliminating the need to use taxpayer funds or state general fund appropriations for the project.
The details of the partnership are unique as well. “The way we structured this partnership provides a competitive advantage for LSU, allowing the university to get the greatest value out of the deal while also providing value for the students,” says Ferrari. Typically, deals of this nature and use are usually handed off to the private development partner to execute a deal based on a program and terms. In this scenario, LSU was able to remain engaged as a true partner, to help manage and influence the project through its entire duration.
Initially, the foundation expected to receive funding from the state for three elements of the project: the parking garage, improvements to Nicholson Drive, and some utility upgrades. About a month and a half before the financial close, the state pulled out.
“This was a big hit, making a 10 percent difference in the financial performance of the deal,” explains Ferrari. “It launched an all-out rush across all parties involved to figure out how to hedge down the costs and make up the difference.” If the approval was delayed, it would have cost the project even more due to rising interest rates. “This was the ultimate test of the team. But by everyone working together, we were able to make the changes and still closed the deal as scheduled.”
Financial close for the Nicholson Gateway project took place on Thursday, September 29, 2016, and construction began the next Monday, October 3, 2016. After selecting the master developer in February 2016, the eight months leading up to that close were intense. Buildings had to be designed. Contracts had to be negotiated. Funding had to be worked out. And a myriad of political approvals had to be obtained. “Going vertical a year from start is almost unheard of for a project of this magnitude,” Ferrari says.
“We had eight months to completely stand up a project on a quarter billion dollars. No one does that.”
Yet, LSU, the LSU Foundation, RISE and their teammates, and the development advisors CSRS/B&D made it happen. “The pre-planning we did and the extended negotiation with the two finalists built the backbone of a well-oiled project team and allowed us to meet our milestones even when things got tough,” says Ferrari.