UMBC dorm project OK'd Foundation to build residence, collect rent until debt is paid off

Beds for 250 by next fall

Unusual capital plan viewed as model for others in state

November 15, 1998|By Michael Hill | Michael Hill,SUN STAFF

With what was once primarily a commuter school rapidly turning into a residential campus, the University of Maryland, Baltimore County needed more dormitory space quickly.

In stepped John C. Erickson, developer of the Charlestown and Oak Crest retirement communities, with an unusual proposal that will provide the school with 250 new dormitory beds by next fall.

Under a plan approved by the state Board of Public Works last week, the $14 million building -- which eventually will house 500 students -- will be built by the Erickson Foundation, with the foundation receiving the money students pay to rent the rooms.

When the foundation has paid off the debt it incurred for the project -- in eight to 12 years -- it will give the building to the school.

"This is a model that the rest of the state can follow," UMBC President Freeman A. Hrabowski said of the financing and construction plan. "John Erickson is a visionary who cares deeply about education."

Erickson said he got involved last spring at his first meeting as member of the school's Board of Visitors.

"They were talking about how they needed these dormitories and they couldn't get any money from the state for them, so I said some foundation could build it and rent it back to the school," Erickson said. "Next thing I knew, my foundation was building it."

Erickson said the plan allows UMBC to benefit from the borrowing power of his 2-year-old foundation. With $20 million in assets, the foundation could not afford to pay for the building outright, but it can issue tax-exempt bonds to pay for its construction.

"We hope we can learn some lessons from this that can be applied in the future, not only to UMBC but to all our campuses," said Donald N. Langenberg, chancellor of the University System of Maryland.

Langenberg said state funds are usually not available for construction of residences because they are considered auxiliary services -- like bookstores -- that are expected to pay for themselves.

'Outside the box'

"The question becomes where you get the capital to build them," he said. "We've encouraged our presidents to think outside the box, and Freeman Hrabowski and John Erickson have done just that."

Mark Behm, UMBC's vice president for administrative affairs, said the contribution by the Erickson Foundation after its debt is retired will come to about $1.5 million, the typical cost of construction management and development fees.

"As far as we know, this is the first time anything like this has been done in the country," Behm said.

One aspect that makes the arrangement unique, he said, is that there will be no profit at any stage of the project.

"Even if a not-for-profit foundation pays a construction company to build a building, someone somewhere along the line is making a profit," he said. "That will not be the case here."

That is possible because the foundation can act as its own construction company. It is associated with Erickson's Senior Campus Living company, which has built many such structures in its communities for senior citizens in Maryland and elsewhere.

Foundation assumes risk

Also, Behm said, the foundation is assuming the risk, which has not been the case when for-profit entities have built dormitories for colleges. Those companies have reserved the right to rent unused space to anyone; this dormitory will be restricted to UMBC students, though the school does not guarantee the number of students who will live there.

Erickson said the school's continued growth and need for housing should make the venture an easy sell to financial backers.

UMBC has 2,300 dormitory beds for an undergraduate population that is expected to grow from 6,200 to more than 7,500 during the next decade. There is currently a waiting list of 400 students seeking on-campus housing.

"What we are seeing is that more of our upperclassmen like on-campus living, so they are not moving off, even though we encourage them to," Hrabowski said. "That's good news for the school, but means we need more dormitories."

Quick start

The arrangement with the Erickson Foundation also means construction can start quickly, without waiting for approval from state agencies or following state bidding procedures.

The school is clearing ground for the dormitory. Construction is expected to begin next month, with the first stage ready for occupancy in August. The second stage is to be finished a year later.

Pub Date: 11/15/98

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