Sustainable University Development in Africa:

The Role of Private Capital in

Addressing Public Sector Needs

Green Real Estate TBLI Amsterdam November, 2008

International Targets For Higher Education Enrollment in Africa

• Target University Gross Enrollment Ratios: 10%

• Estimated Cost to Deliver Facilities to Meet Target Gross Enrollment Ratio: $10.85 billion

• Projected International Funding Allocated to Facilities: $350 million

• Total Number of New Seats Needed to Deliver Enrollment Goals: 6,204,259

Eligible Population

200569,932,500

201078,804,184

201588,309,793

202098,263,803

p. 3

Model of University Mixed-Use Development

Waste-to-EnergyAnd WaterFacilities

Universities

Health Facilities and Research Laboratories

SecondarySchools

PrimarySchools

Commercial Development

Microfinance Enterprises

Staff and Student Housing

Mixed-IncomeCommunity

Housing

University Cities Educational Villages

Clean WaterSmall Scale

SecondarySchools

Health Clinic

Small scaleAgro-Business

PrimarySchools

MicrofinanceEnterprise

Staff Housing

CommercialDevelopmentSmall Scale

Waste-to-energySmall Scale

Mixed IncomeCommunity

Housing

p. 4

Importance of Quality of Life and Design to Human Productivity

• Major human productivity gainsthrough enhanced natural light,indoor air quality, and acousticsin learning environments.

• Poorly maintained facilities havea negative psychological impacton student and teacherconfidence.

• Increase in temperature of 10degrees (Fahrenheit) abovemoderate can decreaseachievement by 30%.

• Quality design aesthetics inlearning environments have beenlinked to enhanced achievementthrough increased confidence andsense of pride in endeavors.

Faculty retention and migration studies showteachers must be paid 40% higher salaries toprevent migration towards better facilities andmore convenient locations.

p. 5

Benefits to University From BOT Public-Private Partnerships

• Off balance sheet financing allowsuniversities access to additionalcapital without the debt burden.

• Private sector partners build fasterand at lower costs.

• Cost savings can be applied toadditional amenities or facilities.

• Private asset management allowsuniversities to focus more resourceson building their academic brand.

• Private developers bring coreexpertise in other developmentsectors including commercial andresidential, which enhances thequality of life for the universitycommunity.

p. 6

Promote Environmentally Sensitive Development

Solar Orientation & Passive Solar Shading:• Reduces heating/cooling loads by 15% – 35%.• No moving parts to ‘break down’ with ultra-low

maintenance .• Key component to passive survivability.

Medium Density Massing• Substantially reduces construction costs.• Relies more heavily on local materials and labor.• Facilitates more efficient use of sustainable energy

systems.• Reduces maintenance and replacement costs.

Natural Day Lighting (Energy Systems)• ‘Free’ lighting reduces peak electric power demand.• Increased occupant comfort, productivity and

health.

Regional Materials:• Recycled/recyclable materials conserve natural

resources.• Locally sourced materials & labor lowers embodied

energy.• Supports local/regional economy.

Daylight/Passing Cooling

Shading Devices

Medium Density Massing

Regional Materials

p. 7

Focus on Transit Oriented Development

• Frequent and convenient mass transitdramatically increases quality of life forresidents through reduced traffic, pollution,and urban noise.

• Affordable mass transit increases mobility oflow-income workforce encouragingeconomic development.

• Reduced vehicular traffic supports shoppingand dining with pedestrian-friendlystreetscape.

• Accessible university public transitthroughout downtown promotesconsumerism among university affiliates.

• Well-managed and sustainable public transitcan create significant revenues for the cityand the university.

With congestion remaining the primary quality of life issue in most major African cities such as Nairobi and Dar es Salaam, thoughtful and accessible public transit systems throughout campus development schemes can substantially enhance the consumer draw.

p. 8

Integration of Public and Private Facilities to Promote Smart Growth

Universities can increase their annual operating revenues by leasing auditoriums and other public facilities to private companies when co-located with commercial office tenants. Other possible revenues include leasing dormitories off-season as hotel rooms during conferences held on campus.

Locating student dorms above retail space conserves land resources for future complementary development.

• Reduces overall cost to publicinstitutions as private facilities cross-finance public uses.

• Enhances project economics and long-term asset value by drawing consumersto public facilities such as libraries,theaters, municipal administrationbuildings, schools and leisure centers.

• Increases tax revenues to municipalitiesas there are fewer tax-exempt landparcels.

• Creates a more desirable urban contextfor long-term development of the city.

• Promotes casual interactions amongdiverse socio-economic and age groupswhich promotes student development.

Social Impact of Constructing 50,000 Additional University Seats in Africa through Public-Private Partnerships

Short-term Social Impact• 20,107 new jobs created directly

by university.• Teachers trained for 20,000

additional student seats annually.• 5,741 new jobs for women;

25,000 new women university graduates; 10,000 new girls in primary school.

• Commercial space for over 600incubator companies and over 2,200 local retailers co-located on campus.

• Student housing for 50,000students plus an additional 500mixed-income residential units.

• 98,800 additional temporary and permanent jobs.

Long-term Social Impact• Increase of 6% in the survival rate of

children under age 5.• Decrease maternal deaths from

childbirth by 44 per 100,000.• Long-term financial support for

7,000 full tuition scholarships annually for BOP students from proceeds of university endowment.

• Each additional year of education in Africa increases annual income by 11%.

• University education has a multiplier effect (2.54 for men and 2.17 for women) on average earnings.

• When higher education graduates increase by 1%, long-term GDP output grows between 0.42% and 0.63% while industrial output increases 35%.

p. 10

Project Cash Flow Chart: Target Return of 25%

Portion of Revenues to University Endowments

Grants & Foreign Aid

Non-profit Partner

Universities &Secondary Schools

University Revenue Resources

Investment Capital& Financing

Investment &Development Fund

Local Partners

Development of Schools& Co-Located Uses

Local Market Demand

CapitalRevenue

After distributing project cash flows to investors, a portion of income proportionate to replacement reserves will be distributed to a university endowment fund created and managed by the investment fund manager for the duration of the project.

Revenues to InvestorsTarget 25% IRR

1. Securitization of long-term cash flows with credit-enhancing guarantees:

Infrastructure projects based on Build-Operate-Transfer model create long-termstable cash flows where securitization is the optimal exit strategy for investors.

2. Portfolio sale of non-institutional facilities to Regional Private Equity and Pension Funds:

First-mover advantage and unique access to deals is attractive to regional investment firms seeking medium-term investments with diversified sources of risk/return.

3. IPO of Operating Enterprises:

Economies of scale within the school/university network will provide a convenient infrastructure to scale up operating companies that provide critical services to university markets.

Short-term and Long-term Exit Strategies

University areas of major cities in Africa alreadyboast some of the most desirable commercial andresidential districts in their cities. Mlimani Cityat the University of Dar es Salaam is the premiershopping district in Dar es Salaam, Tanzania.

p. 12

Key Risks and Mitigation Strategies for University Housing Investments

Challenges and Risks

1. Investment model is unprecedented and reliable empirical data is lacking.

2. Corruption is prevalent especially in sectors heavily reliant on government agencies.

3. Some potential investments have unproven market conditions.

Mitigation Strategies

Rigorously utilize external consultants (international and local) to create clarity of analysis on local conditions. Develop valuations with information from historical circumstances in other relevant international markets and asset classes.

Work closely with international governments, foundations, bilateral and multilateral organizations who have established a track record for successfully combating corruption in local target areas.

Make investment decisions that rely on extensive due-diligence to identify opportunities with only extremely pent-up demand and constrained supply that has been proven through reliable third-party feasibility studies.

p. 13

Projected Financial Returns

MIXED USE DEVELOPMENT KENYA TANZANIA SIERRA LEONE

STUDENT DORMITORY SF 86,250 207,000 230,000

ACADEMIC FACILITIES SF 160,000 20,000 20,000

COMMERCIAL OFFICE SF 287,500 5,750 8,650

COMMERCIAL RETAIL AND FOOD SF 132,000 11,000 11,000

SECONDARY SCHOOL FACILITIES SF 21,500 N/A 21,000

TOTAL BUILDING AREA 1,138,250 246,625 269,625

ANNUAL GROSS REVENUES $ 8,245,000 $ 2,126,150 $ 2,486,500

ANNUAL OPERATING EXPENSES $ (727,175) $ (410,829) $ (479,625)

NET OPERATING INCOME $7,517,825 $ 1,630,275 $ 1,917,405

ANNUAL DEBT SERVICE ($1,333,572) ($1,063,180) $ (1,081,363)

CASH FLOW AFTER DEBT SERVICE $ 6,184,253 $ 567,095 $ 826,051

TOTAL DEVELOPMENT COSTS $67,552,571 $14,217,238 $ 14,460,388

TOTAL DEBT $41,688,976 $10,662,928 $ 8,676,233

TOTAL EQUITY $24,412,345 $3,554,309 $5,784,155

RATE FOR SECURITIZATION 10% 6% 6%

IRR 42% 81% 66%

RETURN ON EQUITY 119% 67% 44%

p. 14

A New Vision for Higher Education in Africa

Local Merchant Retail and Services

Business and Medical Magnet Secondary Schools

Commercial OfficeIncubator Space

Staff Housing Student

Housing

University Medical and Business Schools

Adult Learning and ICT Center