The Corvias partnership with Howard University, one of the largest and most highly respected of the Historically Black Colleges and Universities (HBCUs) in the country was initiated, created, and finalized in 13 months. Although first focused on one set of existing residential Towers on campus, the partnership was soon expanded to include additional student housing to ensure the quality of life across the campus improved. Howard University enrolls approximately 10,000 undergraduates, graduate, and professional students each year. Under the terms of the 40-year partnership, Corvias is financing, renovating, managing, operating, and maintaining four residential facilities on the Central Campus, located in the heart of Washington, DC approximately two miles away from the US Capitol.
Corvias and Howard agreed to enact an “operational close” to the program, with Corvias taking over operation, management and maintenance of housing and performing Res Life functions such as management of RAs. For example, Corvias implemented a training program for RAs to address prevention and reporting of sexual assault on campus (as required by Title IX). An operational close involved Corvias taking over responsibility for the existing residence halls prior to the partnership agreements being finalized or the financing completed to fund the development and construction. Corvias offered to perform at risk throughout the operational period prior to financial close because it was in the best interest of Howard University to begin to make improvements to the housing and provide more competitive options to students deciding where to pursue higher education.
As part of the transaction, Corvias financed approximately $42 million for the defeasance in outstanding debt associated with the existing student housing beds, which is anticipated to generate positive impacts to Howard University’s balance sheet and credit rating. The financing was developed to balance the goals of improving credit challenges at the University and keeping the debt of the capital raise off the University’s balance sheet. An initial Ba2 GO rating from Moody’s and BBB GO rating from S&P precluded the partnership from getting an investment grade rating from either agency, and ultimately led to a Kroll rating and a financing shorter than the originally anticipated 30 years. Additionally, just the University experienced enrollment challenges for its incoming freshman class due to a new enrollment strategy, and the University’s GO rating was placed on negative outlook by S&P.
Howard and Corvias worked together to ensure the partnership was bankruptcy remote from the University. Corvias worked with the University to modify the University’s cash management system so that project revenues will not be commingled with University funds and utilized an external lockbox agent and account to manage funds. Howard University also created its own SPE that is bankruptcy remote from the University. The SPE has a security interest in project revenue and owns the physical assets related to the residence halls. Joint governance structures maintained appropriate independent management of funds, and outside counsel (Orrick) provided a non-consolidation opinion at closing.
The partnership was able to offer Howard structural enhancements to create the most value for the University. The Howard SPE entered into key agreements that ensured the benefit of the program are maintained and that the University maintains control of key decisions about their students and the actual physical assets—all to ensure the project debt was off the University’s balance sheet. Rental rates and other key decisions are made by a joint partnership committee on an annual basis and reinvestment reserves are maintained in the best interest of the program long-term. O&M and working capital are maintained in reserves, as well as CR&R and other critical funds for long-term improvements.
In the development of this program, Corvias and Howard University worked directly together to create a partnership structure that addressed both the short- and long-term housing needs at the Central Campus. The initial scope of the program included the renovation and management of Howard Plaza Towers (East and West), two 11-story apartment-style residence halls designated for upperclassmen and graduate students with a total of 777 units, 1,753 end-state beds, and a basement with 368 parking spaces.
The Howard Towers Plaza are the University’s largest housing facilities and comprise approximately 33% of all existing beds on campus. Renovation of the Towers is underway and will occur in two phases, with one Tower being delivered this fall, 2017, and the other in the fall of 2018 to minimize impact on students. The total estimated cost of renovation is approximately $71 million. During the planning stage, Corvias proceeded at risk, and all preliminary construction and design work incurred prior to financial close. The Towers were unoccupied at the point of turnover and had experienced significant water damage during the years not home to students. Corvias integrated the water cleanup and repairs into the already tight schedule for a full renovation of the residence halls and is completing the work on-schedule and on-budget for delivery.
Just before Corvias assumed responsibility for the Howard Plaza Towers on August 1, 2016 (through the operational close), Howard University officials requested that Corvias include Charles R. Drew Hall (322 beds designated for male freshmen) and George W. Cook Hall (201 beds open to all undergraduates) into the program, effectively adding another 10% of the University’s housing inventory to the partnership. In order to accommodate this request, Corvias’ on-site team had only two days to turn 230 rooms, many of which were missing essential items such as sinks, cabinet doors, and carpeting. To ensure we were ready to welcome the new students into functional and safe housing, Corvias volunteers from partnerships across the country traveled t to help. Despite the short timeline and significant checklist for completion, these team members remained positive and absolutely committed to Corvias’ mission, our partner, and, most importantly, the students.