David L. Boren had grand plans for Cross Village.
As the long-serving president of the University of Oklahoma, he planned to expand the Norman campus’s capacity for housing upperclassmen without incurring any debt. Cross Village would feature about 1,200 beds arrayed in apartment-style suites, as well as accompanying parking and some ground-floor retail space, all set to open in the fall of 2018. The project would be built through a $250-million deal that used none of the university’s money, just private capital.
By the fall of 2019, however, Boren was gone. Cross Village was only about a third full, and the ground-floor retail space was deserted. The bonds issued for the project have been downgraded, and the company that borrowed the money for the project could default on its loan payments. Accusations fly between the university and the borrowers and bondholders, and soon, so may lawsuits.
The deal-gone-sour between Oklahoma and the Cross Village developers provides a cautionary tale for colleges and private firms entering such agreements — called public-private partnerships, or P3s — which are an increasingly popular workaround to tight college budgets.
The standoff also highlights the importance of leadership to the success of long-term projects, the risks inherent in rocky presidential transitions, and the potential for problematic projects to cause reputational damage for universities in a time of rising skepticism of higher education.
Boren was following a well-worn path by pursuing a P3, which is designed to offer something valuable to every party to the deal. Colleges get access to money to build without having to borrow or raise millions. Private-capital investors can put their money into seemingly safe vehicles — public colleges, for example — that are typically defined by their stability and longevity.
The Cross Village deal, as agreed to in 2017, was fairly standard. The university owned about 10 acres of land where it wanted to build a dormitory. So it entered into an arrangement called a “ground lease” with a subsidiary of the Provident Resources Group, a nonprofit development and finance firm.
Under the terms of the agreement, the Provident subsidiary leased the site for 50 years and borrowed about $250 million to finance the deal. Balfour Beatty Campus Solutions, the actual developer, oversaw the design and construction of the residence hall and parking garage.
Provident was supposed to receive the revenues from student-housing fees until the bonds were paid off. The university was supposed to rent the 1,000 parking spaces and about 40,000 square feet of ground-floor retail space from Provident, collecting student-parking fees and charging commercial tenants rent, and then making an annual lease payment back to Provident.
The housing fees and the rent from the university, in turn, would help Provident pay off its debt.
According to Steve E. Hicks, the founder and chief executive of Provident, if Boren had remained in office for another year or two, the project would have been an “outstanding success.”
But that’s not what happened.
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