Rental income makes student housing an ideal candidate for PFI. Stephen Hoare looks at two case studies.
A student accommodation block at the University of Kingston shows what can be achieved if the government's stalled Private Finance Initiative ever gets moving .
Completed two years ago, the scheme differs from full-blown PFI in only one respect - the builder did not enter into an own-and-operate contract. Instead, the completed building was handed over to the Co-operative Bank which now leases it to the university over an agreed 25-year period after which ownership reverts to the university.
According to contractor Bovis this is one of the few areas of PFI where the sums add up - a fact underlined by Wimpey's recent successful PFI bid to provide student accommodation at Avery Hill for Greenwich University.
Bovis director Stephen Hockaday says: "All areas are up for grabs in PFI but student accommodation is an ideal candidate because it is income- generating."
Bovis became involved with the university in 1993 when a previous contractor went bust before work could start on site. Kingston already had money tied up in the venture that it was trying to recover so the deal with Bovis had to be self-financing.
Mr Hockaday says: "We looked at what revenue it would generate over 25 years then we designed within that constraint."
Bovis had certain fixed costs - the site on a hill needed substantial piled foundations and the university wanted car parking for 400 vehicles. The variable was the number of units of accommodation that could be fitted within the building to provide a revenue stream sufficient to pay off the cost of construction and finance.
Bovis found it could fit 452 study bedrooms in three blocks of traditional concrete frame and brick construction. But it was not a case of cramming numbers in - the study bedrooms, each with en-suite shower and toilet, had to be comfortable and attractive enough for students to want to live there.
Business development executive Paul Coxon explains: "We were looking at an extremely efficient design and grouped the rooms into small units - five around a communal kitchen."
Work started on site in September 1993 and was completed the following August. Bovis financed the Pounds 5 million project throughout the construction phase before transferring the building and debt to the bank. And the company agreed that if the halls of residence were not ready for occupation on the first day of the new term then the university would not have to pay a penny until the following year.
But according to Mr Coxon the risk was not as high as it sounds. Since the contractor was given total control over the design and work, completion within the timescale was more or less assured.
And as the contract was negotiated rather than put out to competitive tender, Bovis was sure of a profit margin. Says Mr Coxon: "Our partnership with Kingston demonstrated we could give the quality the university was looking for - we are taking a long-term view and are aware that we are building a reputation."
Driving down costs was always high on the agenda but Bovis's philosophy was to keep quality high and reduce long-term running costs and maintenance. A fuel-efficient boiler and good thermal insulation minimised heating costs.
Bovis is in the running for at least one high-profile college PFI scheme.
But with a number of well-publicised cases of colleges going bust or merging, the company like many others views PFI with extreme caution and regards most schemes as unworkable.
According to Mr Coxon, the schemes that stand the most chance of success are off campus and in the middle of town, where a building could be put to another use if the worst happens.