River views, granite countertops, stainless-steel appliances, 9-foot ceilings. This is student housing?
When classes start this fall — if all goes as planned — some 300 students at Johnson & Wales University will be living in Capitol Cove, an upscale condominium project that had been languishing on the market for more than six months.
"It's a great Band-Aid," said Irving Schneider, president of Johnson & Wales's Providence campus, which just signed a three-year lease for the Capitol Cove development. "This arrangement was good for the developer as well as Johnson & Wales."
Some universities around the country have found a silver lining to the real estate recession that has left condominium developers in the lurch. For less time and money than it would take to build a residence hall, universities in places like New York City and Ohio are buying or leasing entire condo projects. And they are also eyeing vacant lots once targeted for high-end condos for use as retail and parking.
"This is a bonanza of an opportunity ... for universities to acquire the space they desperately need," said Dan Fasulo, managing director of Real Capital Analytics.
An exit strategy for developers
For developers, such deals save their projects from being total washouts. The arrangements offer developers an exit strategy from flagging projects, allowing them to unload dozens of unsold units to a single buyer rather than piecemeal.
"They can't sell them, they can't mothball them, they can't bulldoze them," said Jack McCabe, a Florida-based real estate analyst. "Developers right now are looking for every way not to lose their projects into foreclosure."
Sales of condos in April were down 9 percent from year-ago levels and are off 46 percent from the frenzied peak in June 2005, the National Association of Realtors said this week. At the current, sluggish sales pace there is more than a year's supply of units on the market.
Developer Robert Roth has built only one of five buildings planned for Capitol Cove's 5-acre site that bridges downtown Providence with the city's residential East Side.
He began marketing the condos last fall for between $350,000 and $550,000, but got only four reservations and no sales.
Students at Johnson & Wales University will pay yearly rents of $10,383 for one-bedroom apartments and $9,249 for two-bedrooms — comparable prices to on-campus dorms.
"We want the students to treat it more as if it was their home than just a dorm room," said Jamie Stone, 21, a Johnson & Wales student and resident advisor.
Deal will help refinance loans
Roth wouldn't disclose the terms of the lease with Johnson & Wales except to say that it would help refinance the construction loans but would not come close to recouping the $30 million already invested by him and his bank in the project.
"For us, the big hit is that we're not receiving any real equity back from the project," Roth said. "It's not putting any money into anyone's pocket."
In New York, Columbia University last year paid $67.6 million for a residence hall for graduate students and staff in the Riverdale neighborhood of the Bronx after a planned condo development called the Arbor couldn't sell out.
Deal made 'financial sense'
In Ohio, Capital University bought a 30-unit building for $4 million in suburban Columbus that had been marketed as 55-and-older housing but is now reserved for about 60 upperclassmen in good academic standing.
"To build a facility of this quality for a university, there's no way we could have done that for that purchase price," said Nichole Johnson, a Capital University spokeswoman.
She said the deal made financial sense: The cost per bed at the new building was $65, compared to a $93-per-bed cost at a dorm that opened in 2006.
Still, the transactions are raising eyebrows among city leaders who say they were told to expect luxury condos — not students.
Members of the Providence City Council question whether Capitol Cove violated its tax-stabilization treaty with the city by using the building as a dormitory, though Roth said he doesn't expect the deal to be scuttled.
And New York Assemblyman Jeffrey Dinowitz, whose district includes Riverdale, likened the sale of the Arbor building to Columbia to a "bait-and-switch."
"It would have been preferable if those were condos," Dinowitz said. "Generally speaking, people who own their property feel they have a greater stake in the property."
'We had a lot invested'
Nevertheless, builders argue these deals are in the best interest of the community.
Baltimore developer Struever Bros. Eccles & Rouse had originally planned more than 100 condos, 15,500 square feet of retail and 550 parking spaces — at an estimated development cost of $75 million — on a lot next to Johns Hopkins University.
But the project was scrapped as the city's condo market crashed, and the university bought the 1.12-acre parcel last month for $12.5 million — "substantially less" than what had been poured into the project, said James McGill, a Hopkins senior vice president. The school expects to use the site for retail and parking and possibly housing or academic purposes.
"It's fair to say we had a lot invested," said Tim Pula, a Struever Bros. senior development director. But he noted: "We could have built a building and we'd be sitting on a bunch of empty condos, probably at this point."
Back in Rhode Island, Roth said he intends to retake Capitol Cove in three years — though the university has an option for an additional two years — and resell to private buyers, hoping the market will have improved by then and that young professionals won't be turned off by living in former student housing.
He said, "The whole idea for us is to hold the building and bring it into better times."