Case study: Financing Alternatives

There is no argument that renovations require a tremendous amount of money. Often, expensive but necessary features are cut or even reduced to less-expensive models in order to stay within budget. The University of the Arts in Philadelphia faced similar problems when transforming a 90-year-old, former luxury hotel into a 17-story, 220,000-square-foot building with classrooms, and a studio and performance center for students.

The urban campus has a booming population and was faced with limited real-estate options that included high acquisition costs, an anticipated complex construction project and a need for more classroom space — all of which are lucrative investments that could not be sacrificed for the sake of saving money.

When the university purchased it in 1997, the building had fallen on hard times. Each of the 15 floors had been divided into smaller rooms. Years of neglect had left all of the building's systems — including electrical, plumbing and mechanical — in an unsalvageable state. The interior also needed a complete gutting.

The solution was found in a multimillion-dollar financing agreement with an energy-services company (ESCO), PSEG Energy Technologies/Fluidics.

The ESCO purchased, installed, owns and operates the building's heating, cooling and other mechanical equipment and systems. The university pays the company a fixed monthly cost for air conditioning and hot water, and is spared the financial responsibilities that accompany maintenance, upgrades and system improvements.

Reducing the capital investments needed for the project allowed for the money to be used on other aspects of the project.

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