How the Oregon University System is Attacking Deferred Maintenance

Jim Kadamus, Bob Simonton, & Robyn PierceMay 7, 2012Denver, CO

NATIONAL TRENDS IN HIGHER EDUCATION FACILITIES

Jim Kadamus- Vice President, Sightlines LLC

Campuses are getting olderMore high risk space (over 50 years renovation age) on campus

2007 2008 2009 2010 20110%

5%

10%

15%

20%

25%

30%

(%) Square Footage over 50 years old(Renovation Age)

15% increase in space over 50 yrs old since 2007

2007 2008 2009 2010 2011 est$0.0

$500,000,000.0

$1,000,000,000.0

$1,500,000,000.0

$2,000,000,000.0

$2,500,000,000.0

$3,000,000,000.0

$3,500,000,000.0

$4,000,000,000.0

New space investment falls with recent economic downturn2010 and 2011 investment in existing space exceeds investment in new space

Capital Investment on New Space

2007 2008 2009 2010 2011$0

$1

$2

$3

$4

$5

$6

$7

Annual Stewardship Asset Reinvestment

$/G

SFCapital investment moves in cycles over time

Recurring capital investment remains steady

Capital Investment in Existing Space $/GSF

Capital Investment Mix since 2005Proportionately less investment in space as overall capital funding grows

14%

28%

14%

35%

9%

FY2005

14%

30%

17%

33%

6%

FY2011

13%

24%

14%

41%

8%

FY2002

Building Envelope Building Systems Infrastructure

Space Renewal Safety/Code

Total Project Spending Mix

“Backlog of needs” are increasingBacklogs up about $10/GSF over last five years

Total Backlog $/GSF

2007 2008 2009 2010 2011$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$/G

SF

14% increase in total backlog since 2007

Case Study: State SystemInstitutions with lower backlogs have lower operating costs

Backlog less than $100/GSF Backlog more than $100/GSF$3.00

$3.20

$3.40

$3.60

$3.80

$4.00

$4.20

$4.40

$4.60

$4.80

$5.00

$3.95

$4.42

$0.24

$0.22

Comparing Cost of Facilities(High vs. Low Backlog of Need)

Daily Service Planned Maintenance

Ope

ratin

g Ex

pend

iture

s, $/

GSF

National trends creates issues for Higher Education

More buildings are crossing over into higher risk age profile and will increase campus backlog unless addressed

Shrinking capital and increasing debt will make setting clear priorities for capital renewal critical

Projects are shifting away from space and programmatic projects and more into building enhancing type work

Backlog is growing and has grown by $10/GSF over the last 5 years

Sightlines ProfileCommon vocabulary, consistent methodology, credibility through benchmarking

Annual Stewardship

The annual investment needed to ensure buildings will properly perform and reach their useful life “Keep-Up Costs”

Asset Reinvestment

The accumulated backlog of repair and modernization needs and the definition of resource capacity to correct them. “Catch-Up Costs”

Asse

t Val

ue C

hang

e

Operational Effectiveness

The effectiveness of the facilities operating budget, staffing, supervision, and energy management

Service

The measure of service process, the maintenance quality of space and systems, and the customers opinion of service delivery

Ope

ratio

ns S

ucce

ss

310+ Campuses in 42 States

54% Public; 46% Private

Database of 23,500 buildings and 835 million GSF

Tracking $5.9 billion in operating budgets…

…and $8 billion in capital projects

OREGON UNIVERSITY SYSTEM

Bob Simonton – Assistant Vice Chancellor for Capital Programs, OUS

Oregon Space in Context

Total Oregon Square Footage: 12.5M# of Buildings: 405# of Developed Acres: 1,200+

Oregon 2007 Oregon 20110%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Under 10; 15% Under 10; 15%

10 to 25, 14% 10 to 25; 16%

25 to 50; 36% 25 to 50; 29%

Over 50, 35% Over 50; 40%

Renovation Age Distribution

FY11, 69% of space over 25 years old, compared to 71% in FY07

OUS Total Backlog of NeedRecent capital investments have started to decrease backlog

FY2007 FY2008 FY2009 FY2010 FY2011$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

$700,000,000

$800,000,000

$900,000,000

$1,000,000,000

OUS AR Backlog Total FY07-FY11

FY2007 FY2008 FY2009 FY2010 FY2011$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

Total Capital Investment into SpaceProjects in Millions

Existing Space New and Replacement Space

State Project Investment FY07-11The system invested over $850 million over the past 5 years

Stewardship Falling Short of Target, One-Time Helping Sustain ValueIn FY11, one time capital helps to increase NAV for the first time

2007 2008 2009 2010 2011$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

$140,000,000

Oregon System TargetFY07-FY11

Annual Stewardship Asset Reinvestment

Target Need

Life Cycle Need

Increasing Net Asset Value

Sustaining Net Asset Value

Decreasing Net Asset Value

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY07 FY08 FY09 FY10 FY11

Understanding the NAVNAV is in “Balanced Portfolio” stage

“Catch Up” Stage: Buildings require more significant repairs; major building components are in jeopardy of complete failure; large-scale capital infusions or renovations are inevitable

“Keep Up” Stage: Primarily new or recently renovated buildings w/ sporadic building repair & life cycle needs

Balanced Portfolio Stage: Buildings are beginning to show their age and may require more significant investment and renovation on a case-by-case basis

NAV Index FY07 – FY11

(Replacement Value – Building Needs)Replacement Value

NAV=

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

OITU of O OSU

EOU

WOU PSU

SOU

Understanding the NAV by InstitutionCampuses distributed across stages; multiple capital strategies needed

“Catch Up” Stage: Buildings require more significant repairs; major building components are in jeopardy of complete failure; large-scale capital infusions or renovations are inevitable

“Keep Up” Stage: Primarily new or recently renovated buildings w/ sporadic building repair & life cycle needs

Balanced Portfolio Stage: Buildings are beginning to show their age and may require more significant investment and renovation on a case-by-case basis

NAV Index FY11

(Replacement Value – Building Needs)Replacement Value

NAV=

16%

24%

16%

39%

5%

Oregon System FY07 Mix of Spending

Capital mix of spendingOUS’s mix of spending shifted towards infrastructure and seismic projects

5%

17%

34%

25%

18%

Oregon System FY11Mix of Spending

Bldg. Envelope

Bldg. Systems

Infrastructure

Space

Code

OUS Longitudinal Energy ConsumptionOUS institutions decreasing consumption with the help of infrastructure projects

2007 2008 2009 2010 20110

20,000

40,000

60,000

80,000

100,000

120,000

140,000Average Energy Consumption / GSF

Fossil Electric

BTU

/GSF

Top 3 Energy Reductions (since FY07)

PSU 29%

WOU 11%

SOU 8%

5%

17%

33%19%

26%

PSU, WOU and SOU spending since FY07

Bldg. Envelope Bldg. SystemsInfrastructure SpaceCode

5% decrease since 2009

Oregon University SystemInvestments at the right places – Big Impact!

OUS’s campuses are aging Up until FY10, backlog was growing annuallyWith the increase of funding and putting investments into the

right projects (building systems and infrastructure), OUS was able to stabilize and reduce the backlog

NAV started to increase due to a combination of annual investments and one-time capital infusions

Big impact on energy consumption with new infrastructure project, decreased total consumption by 5% since FY09

PORTLAND STATE UNIVERSITY

Robyn Pierce – Director of Facilities, PSU

Age profileDecreasing the space over 25 years old over time

Under 10 10 to 25 25 to 50 Over 500%

10%

20%

30%

40%

50%

60%

17%

3%

56%

25%

13%9%

52%

26%20% 21%

36%

23%

GSF by Reno. Age Category

PDX 2007 PDX 2011 Peers 2011

% o

f GSF

Recent investments address historical underfundingStewardship spending has increased with reinvestment growth

FY2007 FY2008 FY2009 FY2010 FY2011 FY2007 FY2008 FY2009 FY2010 FY2011 $-

$5

$10

$15

$20

$25

$30

$35

Total Project Spending

Annual Stewardship Asset Reinvestment

$/G

SF

Peers’ Longitudinal Average: $4.04/GSF

PSU’s Longitudinal Average: $12.78/GSF

Peers PSU

Asset reinvestment is increasing net asset valueIncreasing annual funding combined with one-time capital having an impact

2007 2008 2009 2010 2011$0.0

$10,000,000.0

$20,000,000.0

$30,000,000.0

$40,000,000.0

$50,000,000.0

$60,000,000.0

Total Project Spending vs. TargetFY07-FY11

$ in

Mill

ions

Asset ReinvestmentAnnual Stewardship Target Investment Range

Increasing Net Asset Value

Sustaining Net Asset Value

Decreasing Net Asset Value

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY07 FY08 FY09 FY10FY11

Understanding PSU’s NAV over the yearsNAV is in trending upwards

“Catch Up” Stage: Buildings require more significant repairs; major building components are in jeopardy of complete failure; large-scale capital infusions or renovations are inevitable

“Keep Up” Stage: Primarily new or recently renovated buildings w/ sporadic building repair & life cycle needs

Balanced Portfolio Stage: Buildings are beginning to show their age and may require more significant investment and renovation on a case-by-case basis

NAV Index FY07 – FY11

(Replacement Value – Building Needs)Replacement Value

NAV=

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%Smith Memorial Student Union;

93%

URBAN CENTER ; 83%

WEST HEATING PLANT ; 61%

SIMON BENSON HOUSE ; 57%

Bringing up the campus NAVNewer buildings are in “Keep Up” stage; many buildings in “Catch Up” stage

“Catch Up” Stage: Buildings require more significant repairs; major building components are in jeopardy of complete failure; large-scale capital infusions or renovations are inevitable

“Keep Up” Stage: Primarily new or recently renovated buildings w/ sporadic building repair & life cycle needs

Balanced Portfolio Stage: Buildings are beginning to show their age and may require more significant investment and renovation on a case-by-case basis

PSU By Building

(Replacement Value – Building Needs)Replacement Value

NAV=

Large investment into infrastructure and seismic upgradesShift into building and energy enhancing projects

7%

23%

12%

54%

4%

PSU FY07 Mix of Spending

1% 6%

42%

17%

33%

PSU FY11Mix of Spending

Bldg. EnvelopeBldg. SystemsInfrastructureSpaceCode

$15.5M spent on seismic projects $22.8M spent on utility infrastructure

upgrade projects

Asset reinvestment need versus peersRecent investment has decreased backlog by 20% since FY09

Decreased by 20%

2007 2008 2009 2010 2011

Facilities operating budgetDaily service budget is over $1.00/GSF below peers

2007 2008 2009 2010 2011 2007 2008 2009 2010 2011

Energy cost and consumptionInfrastructure investment has major impact on consumption in high cost market

Since FY09, PSU saved a total of $1.87M due to reduction of energy consumption

2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011

Portland State UniversityShifting in the right direction

PSU had an aging campus with not a lot of capital resourcesAfter receiving a large influx of money starting in FY09, PSU has

increased both keep up and catch up investmentsWith the capital and type of investments, they were able to

decrease the project backlog by 20% Seismic projects and infrastructure projects were large projects

that contributed to energy efficiency and safety/code compliances

With the utility infrastructure upgrade project, PSU’s total energy decreased by 40% since FY09

Limited operating budget has required hard choices on allocation of staff

Using the detailed analysis for multi-year investment planning

4 5 6 7 8 9 1040%

50%

60%

70%

80%

90%

100%

Net Asset Value vs. Program ValueBy Building

Value of Facility to Program1-10 scale, 1= low, 10 = high

Build

ing

Cond

ition

(NAV

)

High Program Value, High NAVMaintain & protect

High Program Value, Low NAVRepairs & Space Improvement

Low Program Value, Low NAVEmergency work only

Low Program Value, High NAVFocus on system work, minimal space

Investment strategy and project selection based on facts

Questions or Discussion

Thank you!