Seller Financed Note Illinois by mnh16485

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									        Student Housing Projects as
           Urban Redevelopment




       CDFA 2008 Development Finance Summit
                               April 30, 2008


Rich Frampton, Vice President
Illinois Finance Authority - Chicago, Illinois
                                                    Overview
I.       Survey of Bond Financed Student Housing
         Projects in Chicago
     –     Pre-development assistance from City
     –     Ownership Structure
     –     Overview of debt/capital structure

•        Public Colleges/Universities
     –     University of Illinois at Chicago – Mixed Use

•        Private Colleges/Univ. Student Housing Project
     –     University Center Project (3 Private Universities)
     –     DePaul University (Lincoln Park)
                                             Overview

II. Trends – Privatized Student Housing Projects
• 100%-financed/owned by Developers
• Questions – Confidence in Market or a Bubble?


III. Conclusion/Discussion/Wrap-up
  – Assessment of Trends given tightening credit
                                  Trends leading to
                     Urban Student Housing Projects

1. Urban Planning Perspective: Development of 24-hr. neighborhoods:
   – Private Universities have become significant tenants/owners in Loop real
     estate market
        • Include purchased buildings, office condo space, and wholly-owned buildings


2. University Strategic Planning Perspective/Rationale:
   –   Transition from commuter campuses
   –   Amenity to attract/retain students (+ higher expectations)
   –   Provides a more traditional Undergraduate experience
   –   Enhances ability for College to fix costs in high cost locations

3. Demand-based:
   – Demographic wave
   – Leverage job/internship opportunities
   – 50,000 students in Chicago Loop
            Background -- Chicago Downtown
                                  Campuses
• Public College/University:
  – University of Illinois at Chicago (“UIC”);
  – 15,000 undergraduate; 10,000 graduate


• Private Undergraduate Colleges/Universities:
  – DePaul University: 23,000 students (~50% in Loop)
  – Columbia College Chicago: 11,500 students (6,800 in
    1992)
  – Roosevelt University: ~ 4,500 FT students
  – Robert Morris College: ~ 3,500 students
  – School of Art Institute of Chicago: ~2,100 students
             Background -- Chicago Downtown
                                   Campuses
• Full-Time Graduate Programs:
  –   Northwestern University Medical/Law School: 1,450
  –   Illinois Institute of Tech. (MBA and Law School): 800
  –   John Marshall Law School: 1,050
  –   DePaul University Law School: 741
  –   Chicago School of Professional Psychology: 1,300

• Other Private Coll/Univ.
  – Saint Xavier University, Chicago
  – Elmhurst College, Elmhurst (15 mi. W of Chicago)
            Example 1: University of Illinois at
                       Chicago (Public Univ.)

•   Campus established in 1965

•   Enrollment Growth: 15,000 undergrads

•   Originally, a Commuter School

•   Began transition to a residential school in 1990
            Example 1: University of Illinois at
                            Chicago (Public)
Constructed first undergrad housing in early 1990’s

New South Campus Housing in University Village
   development:

1.   Upperclass Robinson Hall: 320 beds (Fall 2001)
     (4BR with shared kitchen and bathroom)

2.   Upperclass Beckham Hall (Fall 2003): 450 beds

3.   Fall 2007: 740 Beds added - Stukel Tower
                     UIC’s South Campus/University
                             Village Redevelopment
Elements

•       Redevelopment of Maxwell Street Market District
    –     Commercial and Warehousing District
    –     Home of a Sunday Flea Market
    –     Blighted area with relatively low assessed valuation
    –     Located 1.5 miles SW of Chicago Loop
    –     Adjacent to University of Illinois at Chicago
UIC Maxwell Street --
       Before 2000
 www.maxwellstreetfoundation.org
                  UIC’s South Campus/University
                            Village Development
    Expansion of South Campus with City of Chicago TIF
–     City designated UIC as Developer in 1999 per RDA
–     Established TIF with 23 year life (The Roosevelt/Union TIF)
–     Performance/completion benchmarks for TIF rebates
      payments

    1.5 miles SW of Sears Tower; 85 acres (53 open sp.)
    Mixed Use Project planning began in 1990
    University spent $50M+ assembling parcels
    UIC entered into a Master Development Agreement
    pursuant to a 1996 RFP with private developer
                     UIC’s South Campus/University
                             Village Redevelopment
New Mixed Use Project:
•  120,0000 SF of shell space on Ground Floor of
   University-owned buildings
•  Student Housing: 4-story
•  University administrative bldgs.: 3-story
•  4 level, 650-space Parking Garage
•  4 story, 770-bed student housing facilities

•       2006-7 Block Redevelopment:
    –     740-bed Stukel Hall student housing (+ ground fl. retail)
    –     3,000 seat UIC Forum (convocation center)
                       Financing UIC’s South Campus
                                       Infrastructure:
Financed with University of Illinois Bonds
  –       Tax-Exempt Bonds for UIC Housing and public purposes
  –       Taxable Bonds for private condo/townhomes & retail

UIC entered into Redevelopment Agreement with City
  –       Tax Increment rebate to service both series of Bonds
  –       UIC to apply 2.5% of TIF Rebate for mortgage subsidy
      •     Help affordability



  See www.universityvil.com for project information.
   Board of Trustee of University of Illinois –
     UIC South Campus Project Rev. Bonds
Tax-Exempt Bonds for UIC Student Housing/Public Facil.:
  –       $49.3M – 1999 (Refunded in 2006); insured 7-day fltrs.
  –       $10.0M – 2003 (Phase II); insured serial/term; 2006-2023
      •     Serials yielded 1.95%-4.80% to 2019; Terms: 4.68%-5.0% to 2023
      •     Variable Rate Bonds also have Liquidity Facility
      •     Secured by Pledged Revenues
            1.   Tax Increment received from City of Chicago per RDA, City Note
            2.   Student Tuition and Fees
            3.   Other non-appropriated funds
            4.   Not secured by sale of private use residential real estate (Taxable Bd)

      •     Rate Covenant: Tuition/Fees sufficient for > 1.10x coverage
            –    Univ. also budgeted $1-$3M annually thru 2009 for bond debt svc.
          UIC South Campus Project Rev. Bonds
                -- Financing Private-Use Assets
Taxable Bonds financed Infrastructure for Private
   Use/Market Rate Housing
  –       $27.150M in 2000
  –       Bonds insured and sold as Serial Bonds (6.77%-7.96%)
          maturing from 2001-2013
      •     Secured by Pledged Revenues
            1.   Proceeds from Sale of Land to Developer (So. Campus Devel. Team)
                 » $20,000/unit sold + % of sales price over $325,000
            2.   Tax Increment received from City of Chicago per RDA, City Note
                 » Paid on parity with Tax-Exempt Bonds
            3.   Student Tuition and Fees (subject to Prior pledges)
            4.   Other non-appropriated funds
      •     Rate Covenant: Tuition/Fees sufficient for > 1.10x coverage.
            UIC’s University Village Development
Elements – 892 Units (187 Affordable Units)
•   Condos/Townhomes & Single-Family Homes
    –    Condos: several 6-unit walk-ups and four 80-mid-rise
         buildings
    –    2 of the four mid-rise buildings were adaptive reuse
•       3-Story Walk-up Townhomes
•       36 Single Family Homes
                         UIC South Campus -- University
                                             Buildings
Retail- Ground Floor –       Fall 2007-Stukel Hall -   3,000 seat UIC Forum
 Beckham Hall: 2-4                  740 beds
                                                        Convocation Center
  Student Housing              Student Housing              Fall 2007




East View – UIC Forum/     S. Halsted – Retail on 1    Robinson Hall - 320 beds

Stukel Hall from I-90/94     UIC: 2-3 (Hist. Pres.)
                                                          + Gr. Floor Retail
                         UIC South Campus – For-Sale
                                            Housing
Retail- Ground Floor –      Walk-up Condos          Townhomes - 3-story
Transition to Condos                                Townhomes – U/C
                            Attached 6 Flats
                                                           Phase 4




                         Mid-rise Condos (Rehab.)
 Single-Family Homes       + New Townhomes          Townhomes - 3-story
       2007-2008
                         UIC South Campus – Results
•Residential Units: 95% sold (892 Units); 2,000+ residents
   •Average selling price of $385,000 (expected $325,000)
   •Final phase of construction will be completed in 2008 (7 yrs.)
   •1999 Assessed Value in Roosevelt/Union TIF District: $4.4M
   •2005 Estimated Assessed Value in TIF District: $59.6M (1255% increase)

•Impetus to more development – University Commons:
   •Condo. Conversion and Reuse of Historic South Water Mkt. (824 units)
   •Built in 1925; 2007 NAHB Multifamily Development of Year
       Example 2 – Private College Project:
      University Center of Chicago (“UCC”)

Joint Venture of Columbia, DePaul U., Roosevelt U.
3 Private Institutions
•   1,680 students and 43 resident staff
•   18-story structure
•   Located within 3 blocks of each campus
•   Built in 2002-2004
                                       Example 2:
                     University Center of Chicago

Columbia Coll., DePaul U., & Roosevelt U. formed a
    Special Purpose Entity to own/develop

•    Educational Advancement Fund, Inc. (“EAF”)
    – Each Institution represented by 2 Board Members
    – 501(c)(3) IRS Determination Letter in 2002

    –   Columbia and DePaul each own 40.625% of EAF
    –   Roosevelt owns 18.75% of EAF
                                         Example 2:
                       University Center of Chicago

City and UCC entered into Redevel. Agreement
    –     City sold land to UCC for $1
•       Non-recourse, project financing
•       Rated, unenhanced -- Baa3/BBB (Moody’s/Fitch)

•       Annual Use Commitment on 4/1 annually by each
•       Extra beds OK to lease to other 501(c)(3) colleges
•       Ground Floor Retail + Conference Space
•       Facility managed by US Equities Stud. Hous. LLC
                                    501(c)(3) Bonds –
                         University Center of Chicago

40% of Units include kitchen
60% traditional dorm rooms (no kitchen)
  –       More Limited alternate uses

Supplemental Income Sources
  –       Ground Floor Retail:
      •     7-Eleven, Panera Bread Co., College Bookstore, MB Bank,
            US Army
  –       Educational Conferences

  –       See www.universitycenter.com
                                  501(c)(3) Bonds –
                       University Center of Chicago

$151M Bonds issued in 2002; adv. ref. in 2006
  –       Appraised in 2006 based on Net Oper. Inc. (NOI)

Series 2006 A-B Bonds rated Baa3/BBB Rated
    project financing (unenhanced)
  –       $43.2M Series 2006A: 5.25% Fixed; Mat.: 2034
  –       $119.6M Series 2006B: Serial and Term Bonds
      •     Serial Bonds: 4.50% to 5.00% (1 to 10 years)
      •     Term Bonds: 5.00% to 5.25% (13, 19 & 24 years)
                               501(c)(3) Bonds –
                    University Center of Chicago

Bondholders secured by :
• Gross Revenues pledge (assignment of
   rents/leases)
• 1st Mortgage on Real Estate and Senior Lien
   on all M&E
• Reserves and other resources of UCC
     •   No guarantee by the underlying members
•   Rate Covenant: Fees must assure > 1.20x
    debt service coverage
            University Center of Chicago
South Loop – Congress St. and S. State Street
     Educational Advancement Fund, Inc., a 501(c)(3) corp.
   (Columbia College, DePaul University, Roosevelt University)
                Example 3 – 501(c)(3) Bonds:
            1237 West - DePaul (Lincoln Park)
New Construction Project opened in 2006
•   580 beds
•   6-story structure (1st floor retail)
•   15,000 SF Retail (Starbuck’s, Citibank)
•   Located adjacent to Lincoln Park campus
•   Posted as DePaul-affiliated student housing
•   Replaced private trade school (1930’s) that was
    relocated
                                 501(c)(3) Bonds
                1237 West – DePaul (Lincoln Park)
•       Off Balance Sheet to DePaul
•       Project Financing

•       Owned by a 501(c)(3) Supporting Entity:
    –     MJH Education Assistance Foundation

•       Upon repayment, facility to be donated to
        DePaul
    –     DePaul can also exercise purchase option
              Credit Issues - Financing 1237 West

•       Rating Agencies: no investment grade ratings if
        Bonds financed construction (i.e., risk)

•       MJH engaged Developer: Design, Build,
        Finance contract with Developer
•       Developer purchased site
•       Developer arranged for Bank Constr. Financing
•       IFA Bonds escrowed until completion –
    –     Permanent financing to take-out construction
          financing
                       501(c)(3) Bond Financing for
                                         1237 West
•       Financed with 2 Rated Series sold to market
    –     Series 2004A Senior Bonds: $58.34M
    –     Series 2004B Subordinate Bonds: $15.05M


•       Two rated series based on coverage/priority
•       Initially rated Baa2 and Baa3 (Moody’s)
•       DePaul provides “best efforts” to fill beds
                            501(c)(3) Bond Financing for
                                              1237 West
Equity for land purchased by Developer deferred
   into a Junior Subordinate Seller Note:

•       +Series 2004C Junior Subordinate Bonds ($13M)
    –        Initially held by Developer (form of “Seller Note”)
    –        Payments contingent on sufficient coverage of Series
             2004A and Series 2004B Bonds (+ payment tests)
    –        Privately placed in $100M denominations (no resale)
    –        SeriesC Bonds assured Developer had “skin in game”
         •     Motivation to make project work if problems
         •     Developer has inside knowledge – minimal risk to IFA
         1237 West – DePaul (Lincoln Park)
Borrower/Owner: MJH Education Assistance Foundation, a 501(c)(3) corp.
1237 W. Fullerton Retail: Citibank, Starbuck’s, Sandwich Shop, Hair Stylist


                           See www.1237west.com
Leasing for
1237 West
                   Privatized Student Housing –
                          Automatic Lofts at UIC

•Unaffiliated with UIC, but adjacent to UIC campus
•Developed and owned as speculative development
•142-units; 484 beds; 1-4 BR units w/kitchens (no meals)
•Privately constructed; opened Fall 2007
•Used Historic Tax Credits; building on Nat’l. Register
•9/2007: Purchased for $53M by ASB Capital Mgmt.
LLC of Bethesda, MD (institutional investor) and The
Scion Group
                        Privatized Student Housing –
                               Automatic Lofts at UIC
 Privately-owned, bank-financed with Historic Tax Credits
Former Automatic Electric Co. Bldg. (National Register of Hist. Places)
                     See www.automaticlofts.com
Privatized Student Housing –
       Automatic Lofts at UIC
                   Privatized Student Housing –
                                   Dwight Lofts
•Off-campus; unaffiliated with any College
•Developed and owned as spec development
•Privately constructed
•750 beds opening Fall 2008 (3 blocks from Univ. Ctr.)
•3/08: purchased by ASB Capital Mgt. LLC prior to
       opening ($75M)

•See http://dwightlofts.com
                    Privatized Student Housing –
                  Pittsfield Bldg./The Alter Group
Off-campus (Pittsfield Building; historic landmark)

•Purchase and rehab. 9 floors to student housing
•4 floors to Roosevelt U.; 3 floors to Robert Morris Coll.
•Developed & owned by The Alter Group (syndicated)
•350 beds opening Fall 2008 w/kitchens (578 built-out)
•$45M est. development cost
•Initially leasing floors to colleges
           More New Privatized Properties
• The Buckingham: Columbia College master
  leasing 456 beds in converted office bldg.
  – Institutional syndication by private equity firms

• Additionally, plans in press for another 440 beds
  financed by private equity funds

• Trend: Blue Vista Capital Partners and Place
  Properties formed student housing equity fund
  ($280 million)
  – See: http://bluevistallc.com/bvplace.asp
                                 Student Housing
                    Ownership/Development Models
•       University-Owned/Sponsored Model (UIC)
    –     General Obligation of University
    –     Many private Colleges finance directly (Tax-Exempt with a
          Bank LOC)


•       Independent 501(c)(3) Model
    –     Limited Recourse to University (Univ. Ctr.,1237 West)


•       Fully Privatized, Private Developer Model
    –     Non-Recourse to Coll./Univ.
    –     Automatic Lofts, Dwight Lofts, The Pittsfield Building
                    Rating Agency Perspectives on
                          Student Housing Credits
Demand:
• Current/historical occupancy and backlogs
• Is project new or replacement housing?
• Positive enrollment/market niche/residential trends
   – 4 Yr. Colleges much easier than 2 Yr. Colleges
• Is project University-driven or Developer-driven?

Competition:
• Will project “cannibalize” existing student housing?
• Degree of competition from private sector projects
• Competitiveness of rental rates
                        Conclusions/Discussion/
                                       Wrap-Up

• Public Universities: Turnkey financing has
  successfully accelerated project development

• Private Universities: Benefits of the OBS structure,
  perhaps oversold

• University’s historical niche – most important factor
  in evaluating feasibility of housing
                         Conclusions/Discussion/
                                        Wrap-Up
•   Private equity/debt financed projects (inst. inv.) are
    latest trend

•   There are now 3 REIT’s investing in student hsng.
    1. American Campus Communities, Inc. (NYSE: ACC)
    2. GMC Communities Trust (NYSE: GCT)
    3. Education Realty Trust, Inc. (NYSE: EDR)


•   Recent boom in construction and rush of private
    equity – is this another “Bubble”?
             What is future for Student Housing
                                      Projects?
Tougher credit hurdles -- a near certainty
  – Flight to quality among investors
  – General weakening of most bond insurers
  – More rigorous Rating Agency standards
     • Project financings may need more than 1 rating now for investors
     • More active University participation may be necessary in mgm’t.
         – may make third party transactions more difficult
  – Desire for greater transparency in structured financings


Will maturing market attract more institutional investors?
               More Insight on the Future



“The future ain’t what it used to be.”

                        -- Yogi Berra
                                     Contact Information

IFA Illinois Finance Authority
180 North Stetson Avenue
Suite 2555 -- Two Prudential Plaza
Chicago, IL 60601
T: 312.651.1300
F: 312.651.1350
http://www.il-fa.com



Contact:
Rich Frampton
Vice President
Direct: 312.651.1313
rframpton@il-fa.com

								
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