Indiana University of Pennsylvania is being asked to assume ownership of a privately financed residence hall built five years ago on its Punxsutawney campus now that a bank is seeking early repayment of the loan used to build the dorm.
The board of governors for the State System of Higher Education, who meet today and Thursday, will be asked to authorize IUP to buy the building from a university-affiliated organization that built it and pay off the bank note, estimated to cost $8.5 million.
Officials say the most cost-effective way to accomplish repayment is through State System tax-exempt bond financing, which would be backed by student rents.
The three-story, 194-bed facility is owned by University Acquisitions Inc., an IUP-affiliated entity created to build and operate housing at Punxsutawney. The project is on university land leased to University Acquisitions, which opened the residence hall in 2005.
University Acquisitions financed the work with a 25-year loan from Citizens Bank that was to be paid off using income from student rent, State System spokesman Kenn Marshall said Tuesday. He said the variable rate loan included a provision allowing Citizens Bank to seek early repayment of the entire loan.
"The bank could get out of it in (five) years if they wanted to, and I guess, given the credit situation being what it is, Citizens Bank" decided to do so, Mr. Marshall said.
State System officials said the bank gave University Acquisitions notice last year of its intent to tender the note on Nov. 1, 2010. University Acquisitions asked IUP to acquire the dorm and pay the note, according to material prepared for the board of governors.
Angie Wagner, a spokeswoman for Citizens Bank, said she did not have information about the loan Tuesday. Officials from University Acquisitions could not reached for comment.
State System officials said bond financing will match the current amortization rate, and that use of State System bonds will provide an estimated savings over the life of the loan of $1.2 million, or $60,000 a year, compared to the current financing scenario.
Given the more favorable rate, Mr. Marshall said the move will end up having the same effect as refinancing. Michelle Fryling, an IUP spokeswoman, said there will be no negative impact on the university because student rents would pay off the bonds. She noted that the bank, University Acquisitions and the State System have been working together on the matter since the bank notified them of its plans.
"This is not something that is bad. This is something we will be able to absorb because of the rent that is generated by students who live in the facility," she said.
A number of privatized student housing projects have been undertaken across the State System, whose 14 universities include California, Clarion, Edinboro, IUP and Slippery Rock in Western Pennsylvania. Mr. Marshall said the only projects that used bank financing were the Punxsutawney project and a portion of new main campus housing built at IUP.
In April, the State System board of governors authorized $34 million in debt to complete the Kovalchick Center, a sports and convention center at IUP, that fell tens of millions of dollars short in fundraising. The university has set aside $2.2 million in this year's campus budget to cover bond payments that IUP is responsible for unless private fundraising rebounds.
Bill Schackner: firstname.lastname@example.org or 412-263-1977.