$1.3B University of California, Merced P3 expansion project kicks off

Dive Brief:

The University of California, Merced, has broken ground on its $1.3 billion, 1.2-million-square-foot campus expansion project, the Sierra Sun Times reported.
The university, the newest and smallest in the UC system, will add teaching space, research facilities, living accommodations for 1,700 additional students, recreation areas and a competition-level swimming pool. The four-year project is expected to benefit the local economy by almost $2 billion, with a $2.4 billion boon for the state.
Plenary Properties Merced (PPM) is leading the joint venture and will execute design, construction, operation and maintenance under a 39-year public-private partnership, which will see the campus double in size and add capacity for 6,000 additional students. The project is expected to generate 12,000 jobs, with 10,000 of those being construction-related.

Dive Insight:

When originally announced, project officials estimated costs at $1.142 billion, with PPM coming up with $386 million in financing. As a result of the increased price, PPM upped its investment to a little more than $590 million. UC Regents revenue bonds ($600 million) and UC Merced itself ($157 million) are underwriting the balance. UC Merced Chancellor Dorothy Leland said the P3 structure would ensure that the expansion's buildings would be in "top-notch condition" and that it would assume the burden of maintaining the facilities, a challenge for schools and public agencies nationwide.

It should come as no surprise that Leland and the UC system have turned to a P3 as a solution for future maintenance requirements. According to an August report from educational asset consulting firm Sightlines, campus maintenance backlogs have increased 18% at private colleges and 22% at public colleges since 2007, contributing to a total repair and maintenance backlog of approximately $30 billion.

Additionally, more than half of U.S. university buildings require either significant upgrades or replacement, Sightlines reported. P3s are widely considered a strategic choice where long-term maintenance is concerned because many owners believe that the quality of construction will be higher if the same company has to maintain that facility and its equipment.

In addition, P3s allow many cash-strapped public agencies to leverage their dollars over many projects since P3 partners often bring significant financing ability to the deal. Earlier this year, Skanska USA Executive Vice President Larry Casey told Construction Dive that this type of financing option for municipalities and local governments is useful, as they continue to see their capital budgets slashed. Casey predicted that P3s will assume an even larger role in the public sector in the future, as maintenance costs for existing U.S. infrastructure alone are expected to hit $3.6 trillion by 2020.