The University of Kentucky Board of Trustees authorized the next phase of construction for student dorms, giving the go-ahead Sunday for a private developer to build and manage five new residence halls on four sites. The cost for a total of 2,317 modern beds would be $133.7 million.
Construction is under way for a new $25.2 million dorm next to Haggin Hall near the William T. Young Library.
The other five dorms would be built after several housing structures are demolished. For example, two Cooperstown Drive buildings would be torn down to build two dorms, and the old Wildcat Lodge would be demolished for two dorms on that site and the parking lot next to it. The last dorm would be built on the site of Haggin Hall, set to be demolished in May.
The trustees unanimously approved the deal with Memphis-based Education Realty Trust, or EDR, without discussion.
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"It's a historic moment in the history of the University of Kentucky," board chairman Britt Brockman said after the meeting. "This will give the opportunity for living and learning for our students, which is a proven way to retain them."
The leases for all the planned buildings would be 75 years. According to the lease agreement, UK would receive 16 percent of gross revenue from rent until EDR realizes a 9 percent rate of return — estimated after about 30 years. UK then would receive 25 percent of net income. That revenue would be used to support learning communities in the residence halls, said Angie Martin, vice president of finance. Some of the dorms also could include some commercial spaces. The buildings are supposed be LEED Silver certified, meaning they will meet certain standards of energy efficiency and sustainability.
The timetable is fast: UK is hoping to replace and build a total of 9,000 modern beds for a total of $500 million. The General Assembly must approve more building on campus, but EDR would put up all the equity for construction.
EDR will pay prevailing wage rates during construction as part of the deal.
Many universities work with private developers, but the deal is considered to be one of the most wide-ranging in higher education today.
Martin said the deal will work only because it helps both partners: EDR can build a dorm faster and more cheaply than UK, which desperately needs student housing. EDR then will take in most of the revenue over time.
"You must have an alignment of interests, you must have transparency, you must have trust, or it will not work," she said.
In 2014, a room in a new dorm would cost $3,425 to $4,216 per semester. Annual rate increases would be limited to 3 percent, Martin said.
Residents of the first dorm will have slightly lower rates than predicted because that building's property taxes will be spread among all six dorms, she said.
The first dorm will be subject to local property taxes of about $250,000 because it is owned by EDR. The other five new dorms will not be subject to property taxes because, Martin said, the future lease is written so UK retains ownership of the buildings, but EDR has the right to use them.
The state Department of Revenue has approved that deal, but Fayette County Property Value Administrator David O'Neill said he had not signed off yet.
"We are working with" O'Neill, city spokesperson Susan Straub said. "We will examine it carefully."
All six dorms would have brought in $1.5 million a year in property taxes, and UK had said those costs would be passed on to students so EDR's profit margins would remain the same under the deal.
UK is working on a master plan for the campus but decided early in the process where the first five dorms would be. Bob Wiseman, vice president for facilities, said the latter phase of dorm construction would require much more consultation with neighborhoods and the city.
"That is a key question going forward," Wiseman said. "Where should these residence halls be, how do we deal with our needs along with enhancing community and protecting neighborhoods?"
In other business, the board approved six goals for President Eli Capilouto: continued emphasis on undergraduate education and infrastructure; better faculty and staff recruitment and retention; strong environment for research, creative scholarship and graduate education; a new budget model; plans for online education; and a master plan for the campus and beyond. The goals were decided on after an all-day retreat Saturday.