The University of Kentucky’s Board of Trustees signed off on the plan to privatize the public university’s student housing. Ms. Blackford of course has all the details, including but not limited to:
EdR vice president Tom Trubiana said his company is accepting low returns on the first dorm “because we wanted to be part of UK for the long term.”
“The uniqueness here is potentially that we could be the sole-source housing for UK for the future,” Trubiana said. “That’s why it absolutely needs to be a home run.”
Cool. A home run! This deal isn’t a single or a bases clearing double or even a ground rule double. It’s a home run!
Or it needs to be one. Continuing…
If UK and EdR agreed to build a theoretical $10 million dorm, a financial model presented on Tuesday shows that UK would get $239,000 in revenue during the first year of the deal, and EdR would bring in about $239,000. However, the model shows that EdR would not start to make a profit until year 11 of the deal. By year 50, UK would make almost $2 million a year, and EdR would make $1.1 million, an 11 percent profit.
UK and EdR are deciding whether they will pursue an exemption from property taxes on the new dorm. Those taxes are built into EdR’s rates of return, Trubiana said.
“Any benefit would go to UK students in the form of lower rents,” he said.
1) Why would you lower rents when you could make more money? That’s bad business sense.
2) What are the guarantees behind that statement? Is it in the contract?
3) Why does EdR feel no responsibility to the community it seeks to profit off of?
4) Why does the University feel no responsibility to contribute to the upkeep and safety and well being of the city in which it exists?
As Blackford reported the other day:
Property taxes are divided by school systems, city governments and state government, with the majority going to public schools.
Fayette County taxes about 1 percent of a property’s assessed value. Approximately 68 percent of that goes to Fayette County Schools, 13 percent goes to the state, 9 percent goes to the city, 3 percent goes to the public health department, and 7 percent goes to LexTran. Less than 1 percent goes to UK extension services and soil- and water-conservation programs.
Lexington’s PVA David O’Neill estimates the proposed dorm could pay out $280K per year in property taxes.
Poor big businesses and their big tax burden. If corporations are in fact individuals, then should they really be granted tax relief individuals would never get?
In what world could you stop paying your property taxes?
Wouldn’t that be nice? Don’t you give enough back to the community as it is, just by being you?
Here’s another idea: Stop charging homeowners who live in the neighborhoods bordering the UK campus property tax.
If they don’t have to pay their property taxes, these homeowners could invest the money in a scholarship fund or something to reduce student costs and make college cheaper for the kids.
Because they would. They really would.
Read more Blackford.
Read UK’s Press Release.
Read Education Realty Trust’s Press Release.
Buy your EDR stock now!
And read the ground lease draft (PDF). Some highlights:
(b) Commercial Tenants shall occupy the Premises pursuant to a written lease, license or sublease (each, a “Permitted Commercial Lease” and together with the Permitted Residential Leases, the “Permitted Leases”). The terms of all Permitted Commercial Leases shall comply with the Requirements, and all Permitted Commercial Leases shall be on forms approved by Landlord, in its reasonable discretion; provided that Permitted Commercial Leases (i) shall provide that in the event that such Permitted Commercial Lease is assigned to Landlord or this Lease is terminated, Landlord shall have the right to terminate such Permitted Commercial Lease if necessary to ensure that the Premises are exempt from property taxes when owned by Landlord and in compliance with applicable law relating to tax exempt financing and (ii) may provide that such right is subject to payment by Landlord of a reasonable early termination fee.
Section 8.01 Taxes. Tenant shall pay and discharge punctually when due all taxes, any payments in lieu of taxes, assessments, water and sewer rents, rates and charges, vault license fees or rentals, levies, license and permit fees and all other governmental impositions and charges of every kind and nature whatsoever, extraordinary as well as ordinary, foreseen and unforeseen, which shall be charged, levied, laid, assessed, imposed upon, become due and payable out of or in respect of, or become liens upon the whole or any part of the Premises, together with all interest and penalties, under all present or future laws, ordinances, requirements, orders, directives, rules or regulations or the federal, state, county, and city governments and of all other governmental authorities whatsoever as well as and including all payments in lieu of any of the foregoing (the “Taxes”). With the prior written consent of Landlord, in the Landlord’s sole and absolute discretion, Tenant may, at its sole cost and expense, seek a tax abatement or other tax exemption for the Premises. At the option of Landlord, the savings obtained as a result of any tax abatement will either serve to reduce the rent charged to the Residential Residents of the Premises or increase the Rent to the University.
Section 8.05 Right to Refund of Taxes. Any savings, credits, refunds or rebates obtained as a result of any tax abatement or other tax exemption being obtained for the Premises shall belong to Landlord and be allocated in accordance with Section 8.01. Any refunds or rebates of the Taxes paid by Tenant shall belong to Tenant and be used in Tenant’s sole discretion.
Section 8.06 Separate Parcel. If necessary or advisable, Landlord shall cooperate with Tenant’s efforts to cause the Premises to be subdivided or re-subdivided to establish the Land and the Improvements as a separate tax parcels.
And some financials…