AAPPA – Space Revisited
‘Cost of Space’
Greg Wickes
Structure of Presentation

Drivers for Costing Space

Size of Australian University Property Portfolio

Analyse McKinnon Benchmarks

Backlog Maintenance and Deferred Liabilities – analysis and
implications for
 sector
 Swinburne
1. Building blocks
2. Alternative Procurement/Capital Ownership Model

Conclusion
2
Drivers for Costing Space

Need to improve space efficiency, increase throughput
and identify under-utilised space

Attract funding which reflects actual cost of occupying
space and maintaining it “fit for purpose”

Provide a comparative for inclusion in business case
models that examine alternative procurement and
space ownership models
3
Size of Australian University Property Portfolio
2002 AAPPA Benchmark Survey Report

Melbourne CBD office, retail and residential = 9,405,145
m2

Australian participating Universities = 8,672,745 m2*
*understated. Not all Universities reported all campuses and 2
Universities did not respond at all.
4
McKinnon Benchmark 5.8 - Physical Assets
Strategic Asset Management
Outcome: 43% at Good Practice and above
Comment: As these plans develop it will be interesting to trend BM & DL
and targeted expenditure, as that will determine the level of formal
acceptance of the problems the system is facing.
1
2
Plans are at
minimal stage
of development
6%
3
4
Plans exist but
require further
refinement. Not
fully endorsed by
institution.
17%
34%
5
Comprehensive plan,
fully documented and
implemented and
regularly reviewed.
Plan has institutional
support.
32%
11%
5
McKinnon Benchmark 5.9 - Physical Assets
Recurrent Maintenance Funding
Outcome: 92% of Universities funding recurrent maintenance at non-optimal
or worse.
1
2
Significant
deterioration of
assets. Notable
backlog of
maintenance.
Funding les than
0.75% assets
replacement
value.
39%
3
4
Non optimal funding of
maintenance but
meeting statutory
requirements for
condition of buildings.
Funding in the range
1.0% - 1.24% asset
replacement value.
39%
14%
5
Maximum durability and
use of investments in
assets.
Maintenance funding
greater than 1.5% of
asset replacement value.
8%
0%
6
McKinnon Benchmark 5.10- Physical Assets
Facilities Maintenance Backlog
Outcome: 81% of Universities at manageable or better re: BM & DL. On the
face of it an acceptable result, but on my assessment a very misleading
result.
1
2
The expense involved
in remedying the
backlog of maintenance
needs is unacceptably
high, being greater than
15% of the asset
replacement value of
university facilities.
8%
3
4
The expense involved
in remedying the
backlog of
maintenance is
manageable, being
between 3.0% and
10% of the asset
replacement value of
university facilities.
11%
58%
5
Good practice is to
achieve a situation where
the expense involved in
remedying the backlog of
maintenance is less than
1.0% of the asset
replacement value of
university facilities
14%
8%
7
Backlog Maintenance and Deferred Liabilities
2002 AAPPA Benchmark Survey Report

27 Universities reported BM & DL = $1.45B

Applying the average to those Universities not reporting
results in adjusted BM & DL = $1.8B

Actual situation is that is likely to be well in excess of
= $2B

Swinburne case in point
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Sector Expenditure on BM & DL
2002 AAPPA Benchmark Survey Report

18 Universities have reported expenditure of $19.5M

Adjust that expenditure level across the remaining 18 Universities
results in sector expenditure = $39M

In excess of 50 years to reduce BM & DL to zero at current
expenditure rates

As 92% of Australian Universities fund recurrent maintenance at
non-optimal or less, 50 years is significantly understated

Reason why McKinnon benchmark 5.10 ‘Facilities BM’ is clearly
misleading, I think the situation facing Universities is anything but
‘manageable’, I suspect equally true for TAFE

Huge issue for Governments generally, across all sectors
9
Swinburne Experience
2002 AAPPA Benchmark Survey Report

Reported BM & DL = $32M, however, likely to be in the order of
$50M

Current expenditure = $450,000 per annum

100 years > zero

Recurrent maintenance expenditure is 0.9% and below nonoptimal, and therefore 100 years pay-off is understated

If Swinburne allocates 100% of capital roll-in, then 13 plus years
to reduce to zero (under funding issue will take it out beyond 13
years)
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Implications for Sector
Q: Should the sector be concerned about the level of BM & DL
A: Yes. Why?

DEST has realised the significance of McKinnon Benchmark 5.9
‘Facilities BM’ and require institutions to report level of backlog
maintenance as part of Capital Management Plan and to identify
targeted expenditure to reduce the backlog

OTTE has established FMIST Project to determine state of
government funded assets and to be more directive in solutions

Compliance/statutory obligations are more visible to senior
management and clients

Quality facilities are competitive edge (student feedback)
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Implications for Swinburne
1. Building Blocks



Operational savings have not
matched capital infrastructure
growth

Effectively facilities and Services
has absorbed 17% cut re: EBA and
m2 increases

Contracting W&W to develop a
SAM – linking to Aperture

Smart Metered all buildings

Validation of Aperture Space
database and examination of linking
with Syllabus+

Refocussed CMP to focus on major
refurbishment and allocating funds
to BM & DL

All new capital projects to be
financed off-balance sheet
(alternative ownership models)
Space allocation and utilisation
Capital Management Plan
12
Implications for Swinburne
2. Alternative Procurement/Capital Ownership Model
Hawthorn Campus Development

Private Finance Initiative raising $60M+

434 beds of student accommodation

10,000 m2 of retail/commercial space

University financial exposure is limited to lease 4,000 m2 of
commercial office space

University alienates the land for long-term lease period

University has no equity in the development and is not
underwriting any component of the development

An SPV will hold the asset for the duration of the lease period and
assets revert to University ownership at expiration of lease
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Implications for Swinburne
2. Alternative Procurement/Capital Ownership Model
Hawthorn Campus Development - Rationale and Business Case

Modified RMIT case study (included allowance for Land Tax and
Council Rates) resulted in a cost of space at the University’s
Hawthorn campus of $264 per m2 (includes capital cost of $162
per m2)

Understated, maintenance rate is an average of buildings mainly
of which have no big ticket items like lifts and air-conditioning

Difficult to business case our cost structure against commercial
cost structures unless we cost what must be done rather than
what we are doing, case in point is the fact that 92% of
Australian universities fund recurrent maintenance at nonoptimal or worse
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Implications for Swinburne
2. Alternative Procurement/Capital Ownership Model

Following EOI process University appointed preferred
financier/arranger

EOI assumptions and financial modeling was tested and a
revised feasibility study demonstrated a substantial project was
viable

Commercial rent will be $230 pa plus approximately $80
outgoings per annum

On the face of it, negative financial impact on the University of
$46 per m2
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Implications for Swinburne
2. Alternative Procurement/Capital Ownership Model

However, the SPV set up to manage the commercial building will
expend $192,233 pa on mechanical plant and lifts (contractual
obligation - SUT equivalent based on AAPPA data is $151,900

SPV is required to set up a sinking fund to handle major
refurbishments = $1.9M over 15 years (contractual obligation)

University draws in 434 students into the campus increasing
residential student population to 674

Creates extra 6,000 m2 of commercial office space that it will
progressively take up (at no cost to the University until such time
as it increase its lease space)
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Conclusion

Costing space is a sensible prerequisite for:
 Improving space efficiency, increasing throughput and identifying under-utilised space – its is
the ‘motivator’
 Attracting funding which reflects the actual cost of occupying space and maintaining it “fit for
purpose”
 Providing a comparative for inclusion in business case models that examine alternative
procurement and space ownership models

Spend time on getting the building blocks/fundamentals right for your
institution
3 Thoughts

AAPPA Benchmarking Report could consider trending BM & DL and targeted
expenditure

AAPPA as an organisation needs to consider its lobbying potential

Encourage VET FM colleagues to participate in our benchmarking report
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