A. Contribution to the Educational Mission

The California State University Board of Trustees is responsible for reviewing Public-Private Partnership projects to ensure such projects are in the best interest of the CSU. This review includes assessing the project's contribution to the educational mission of the university. The campus or auxiliary organization should therefore identify the proposed Real Property Partnership project's connection to the educational mission.

Examples of contributing to the educational mission include:

• student housing that is integral to supporting academic success and graduation initiatives; 
• serving students better by attracting quality faculty and staff with reduced cost faculty and staff housing;
  
• partnerships that offer student research and professional programs; 
• partnerships that offer students internship and job opportunities within their organization; 
• and partnerships that benefit established academic programs.

B. Agreements with External Advisors

Chancellor's Office staff have prequalified real estate financial advisory firms with whom they have executed master enabling agreements (MEAs). Campuses and auxiliary organizations can make use of these agreements after negotiating the scope of services they will require and fees. These MEAs are listed below in the Resources section.

The campus or auxiliary organization will develop the business case for utilizing a Public-Private Partnership for a particular project with the assistance of these external advisors, as appropriate, to ensure a complete analysis.

The Public-Private Partnership financial advisor will coordinate with key personnel from the Chancellor’s Office, the campus and/or the auxiliary organization to evaluate the pros and cons, risks and rewards, trade-offs, and limitations associated with different delivery methods, including the public-private partnership structure, the traditional CSU Systemwide Revenue Bond program, and the alternative financing structure to determine which would be the best fit for the proposed real property development project.

C. Market Demand Study

A Market Demand Study has the following components:

• An overview and analysis of economic conditions to determine if they are favorable to initiating a real estate development
  
• A delineation of the market area to identify the geographical boundaries within which the specified development will be competing
  
• A summary of current economic and demographic trends in the region and in the targeted market area
  
• Development concept, product mix and proposed product positioning for the specified project
  
• An inventory report on existing competitive uses in the market area
  
• An analysis of the current and future potential competition to assess the various real estate products being offered to tenants in the market area and a forecast of demand and absorption for the proposed project in the market area
  
• A conclusion with a thorough analysis of existing and projected level of space needs, rents, vacancies, prices, and values in the market area under investigation. Strengths, weaknesses, opportunities and threats (SWOT) of the proposed project should be outlined.
  

D. Feasibility Study

One of the first steps during the concept stage of a project is to complete a feasibility study to analyze the viability of a proposed project for a given location. A feasibility study will give focus to the project; analyze alternatives; explore new opportunities; identify reasons to proceed or not proceed; and provide documentation that all options were thoroughly investigated.

A feasibility study has the following components:

• Description of the site and neighborhood
  
• Description of the proposed project with basic components and product mix
  
• Site and location analysis, including road connectivity, presence of utilities and other projects in the area
  
• Economic overview of the market area
  
• Market area analysis
  
• Supply and demand analysis
  
• Projection of occupancy and average rental rates
  
• Projection of income and expense
  
• Financial analysis
  

E. Projected Financial Plan

The projected financial plan should include an analysis of the concept that compares self-funding the project using Systemwide Revenue Bonds (SRB) with privately-arranged financing. Projects eligible for SRB funding that should be compared with privately-arranged financing include student housing, parking facilities, health centers, recreation centers, student unions, health facilities, classrooms and extended education facilities. All other types of projects would not be subject to this requirement to compare self-funding the project with privately-arranged financing.

SRB financing should be compared against the following depending on which privately arranged financing structures are being considered for the project:​

• Alternative Financing Structure – project-based bond financing arranged by CSU similar to a 501(c)(3)
• 100% Equity Model
• Debt-Equity Model
  

The projected financial plan should be an Excel spreadsheet covering the same number of years as the ground lease and should show ground rent payments to the campus or the auxiliary organization and cash flow after debt service and/or payment of returns to equity investors. The financial model prepared by the developer during Due Diligence (Stage 4) will be much more detailed as described therein.

F. High-Level Schedule

The campus or auxiliary organization should develop an outline schedule for the project that includes the CSU approval process and CEQA requirements. An example of a high-level schedule for a student housing project is shown here (format may vary):

G. Appraisal

The campus or auxiliary organization should ensure that the university or auxiliary organization will receive "fair market value" for the use of property intended for the project. Market value can be defined as the highest price in terms of money that a property would bring in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently and knowledgeably and under the assumption that the price is not affected by undue stimulus.

An appraisal is an expert opinion of the value of the property by an appraiser. The campus or auxiliary is advised to coordinate with its Public-Private Partnership financial advisor and the Chancellor's Office staff to define a set of instructions and scope of work for the appraiser to incorporate in its valuation to ascentain the fair market value of the property and expected fair return on the ground lease payments from their private partner.

The appraisal will include a description and analysis with some or all of the following:

• Identification and history of the subject property
  
• Site description
• Description of the improvements
• Neighborhood description
• Supply and demand
• Highest and best use
  

The appraiser in determining an opinion of value will consider three approaches to value and use one or possibly all three to confirm conclusions:

• Cost approach: This entails estimating the cost of producing the improvements, deducting an estimate of depreciation, and then adding the value of the site as if vacant. The cost approach is most appropriate for newer construction and less reliable in cases of heavy depreciation.
• Sales or market comparison approach: Inherent in this concept is the premise that a purchaser would not pay more for a property than the cost to acquire another property with the same amenities and utility.
• Income capitalization approach: Based on the concept that value is created by the expectations of future benefits. This approach consists of methods to analyze a property's capacity to generate income and a reversion.
  

Chancellor's Office staff have prequalified real estate appraisal firms and executed master enabling agreements with them; these are listed in the Resources section of this page.