Thursday, Sept. 19, 2013 | 1:20 p.m.
UNLV and its private developer partners don’t see eye to eye when it comes to financing a new on-campus apartment-style dormitory.
The university, which saw devastating cuts during the recession, doesn’t want to be on the hook for the construction, operations and maintenance of Midtown Park, a major capital project that would double the number of beds at UNLV.
However, UNLV’s private partners, faced with skittish investors, want the university to become “more involved” in financing the project, which has ballooned in cost since it was unveiled a couple of months ago.
This disagreement has caused UNLV to cancel a special meeting Monday, when regents and university leaders were scheduled to approve a final memorandum of understanding. Without the approval of the tentative business agreement, Midtown Park’s future is uncertain.
Preliminary plans for the apartment-style dorm, approved by regents in July, called for a five-story building with 550 one- to three-bedroom apartments at the corner of Cottage Grove Avenue and Maryland Parkway. Developers are hoping to open Midtown Park by fall 2015.
UNLV officials saw the new dorm as a way to expand and diversify UNLV’s housing stock and help develop a more vibrant, residential campus that would attract more staff and students.
Over the past couple of months, UNLV was working to complete a memorandum of understanding among private developers AVS, a local firm that markets and manages UNLV’s current dorms; Educational Facilities Development Services, an Arizona-based school developer; and Core Construction, the nation’s fifth-largest school contractor.
(AVS is a private firm founded by Las Vegas real estate developers American Nevada Company and the Vista Group, and Chicago-based Scion Group. American Nevada is a sister company of the Greenspun Media Group, which owns the Las Vegas Sun.)
The memorandum, which outlines the business structure and construction plan for the new dorm, called for a 35-year public-private partnership that placed most of the financial risk on the developers.
UNLV would purchase the land, currently owned by AVS, for $17 million and be responsible for marketing and leasing the apartments, as well as collecting rent. The university would retain 3.5 percent of the rent to cover its costs.
On the other hand, developers would assume the liability for construction and development of the dorm project, as well as maintaining it for the duration of the 35-year contract. Already, developers have spent close to a million dollars in designs and preparation work so far for the project.
However, interest rates for financing the project jumped from 4.5 percent to about 6.25 percent between July and September. The rate increase bumped the estimated cost of the project by a third, from $175 million to $233 million.
Consequently, Educational Facilities Development Services, a relatively new developer that built a successful apartment-style dorm at Arizona State University, proposed an amendment to the tentative agreement. Instead of paying $17 million up front for the land, UNLV would backstop the operations of Midtown Park if not enough students moved in.
EFDS officials argue that if UNLV puts some more skin into the development of Midtown Park, private investors and lenders will be more willing to finance the project at a lower interest rate, saving developers about $2 million annually. The developers plan to pitch this amended MOU to UNLV and higher education leaders during a special meeting on Sept. 30.
“It might be better for (UNLV) to keep their cash and help us get a lower interest rate,” said Steven Nielson, EFDS’ senior vice president of development. “This is a different level of participation, but we’re confident that the university absolutely needs (Midtown Park) for its growth of the campus and its Tier One status goal. There’s some level of risk (UNLV) needs to take to get there.”
UNLV however balked at the proposal.
“That was a big disappointment. (EFDS’ proposal) is the diametrical opposite of what the MOU structure was,” said Gerry Bomotti, UNLV’s senior vice president of finance. “It’s not anything we are interested in doing.”
UNLV will hear its developer partners out, but it’s unlikely the university will budge, if its most recent major capital project is any indication. UNLV’s on-campus football stadium proposal was also pitched as a public-private partnership where developers took on the majority of the risk.
“We haven’t figured out what our next steps will be,” Bomotti said. “That location and that land is still in our master plan. Additional housing for our campus is important. I’m sure we’ll move forward and do something, but at this point, we’re not sure what.”
UNLV must make a “quick and decisive” action soon, Nielson said. That’s because the land on which Midtown Park is planned may change hands next year.
AVS, which owns the 14-acre property just north of Cottage Grove Avenue, is under financial pressure from lenders to resolve its debts. Currently, the land is under escrow by EFDS, but if financing on Midtown Park isn’t finalized by January, AVS may be forced to sell the land to another buyer.
“We hope that’s not a possibility,” said Michael Saltman, AVS’ point man on the project and president of the Vista Group. “One way or another, (Midtown Park) will happen. If it doesn’t happen with UNLV, it’ll happen privately. As a longtime UNLV trustee and Foundation member, I hope that we do this with UNLV.”