by CHARINA De GUZMAN
Faced with growing demands for dormitory space-and a cap on tax-exempt borrowing-DePaul University is exploring a housing venture with real estate developers.
Kenneth A. McHugh, DePaul's executive vice-president for operations and chief financial officer, says leaving dorm development to developers will allow him to focus attention and funds on what he knows best: running an academic institution.
The first of four facilities DePaul is considering building is a 300-bed, $9-million dormitory for undergraduates at its Lincoln Park campus. The school plans to start soliciting bids in three to six months and have the dorm up and running in three years.
Mr. McHugh declined to identify developers DePaul is considering.
Like most other schools, DePaul used to hire an architect, bid the construction contract and borrow the money to build the structure through tax-exempt bonds. Once the project was finished, the builder's obligation ended and the university assumed control of the structure.
But in 1986, the federal government placed a $150-million limit on the amount not-for-profit institutions could borrow without losing their tax-exempt status. "The playing field has been leveled between institutions and developers," Mr. McHugh says. "It boils down to who can do it better."
Although Mr. McHugh says many details still must be worked out, DePaul is studying joint-venture arrangements used by the University of Texas.
There, the developer who wins the bid finances and builds the structure on university land. The completed building is turned over to the school, which then leases it to the developer for 35 to 40 years.
Once total revenue from the building reaches a certain amount-roughly equal to construction and maintenance costs-the developer and the school begin splitting the revenue, usually 50-50. The school takes possession of the building once the lease runs out.
Some real estate developers are willing to handle the extra hassles of building and maintaining student housing, such as unique dorm layouts and more stringent security, when they consider the benefits involved.
"We are in a position to guarantee an income stream based on 100% occupancy," Mr. McHugh says.
Says Philip A. Hickman, senior vice-president at Habitat Co., a Chicago-based developer with 12,000 apartments here: "There are a number of private dorms that do not have that guarantee." He says his company "certainly would be interested in hearing about this."
And as long as the dorm is used and owned by a not-for-profit institution, the developer won't have to pay real estate taxes on it.
Mr. Hickman says that since the property tax accounts for 20% to 25% of the rent in the average Chicago apartment, the exemption would allow developers to give the students lower rents.
