A loyal reader of this blog has stepped forward with firsthand information on President Potter’s agreement with the J.A. Wedum Foundation. Here is this person’s account:

A Modest Proposal (with apologies to Jonathan Swift)
by Silence Dogood

Coborn’s Plaza apartments have been a well-kept secret since they opened in the fall of 2010. Even getting accurate occupancy numbers during the first two years was difficult and only given in whispers with those hearing the secrets being sworn to secrecy. Some of that secrecy ended November 13, 2012 when Len Sippel, Interim Vice President for Finance and Administration, released the list of approved funding for permanent investments that included $2,250,000 for the “Coborn’s Welcome Center.”

This eye-popping number actually covers the deficit for Coborn’s Plaza for the last two years so the loss only averages $1,125,000 per year. The amount of the loss for the first year for Coborn’s Plaza has never been shared with the Faculty Association or made public. As a result, one is left to imagine that it is even larger than the annual loss for the last two years. What has apparently been a tremendous deal for the Coborn’s Corporation and the J. A. Wedum Foundation has, without a doubt, been and will continue to be a financial boondoggle for SCSU.

The initial year (2010-2011) of the 20-year Coborn’s Plaza lease cost SCSU $3,408,360, which divided by the number of rooms (453) means that the annual rent per room (including parking) is $7,524. Because of the escalator clause in the contract, the rent for fall semester 2013 (including parking) works out to $7,828 (or $652 per month for 12 months a year). Rents for two semesters for the least expensive 4 bedroom unit is $7,274 and $7,874 for the most expensive studio apartment. So if there is a mixture of a lot more of the more expensive studio apartments and less of the 4 Bedroom Units and they are all occupied, SCSU will about break even.

Some lawyers who work in real estate law have informed me that no one would ever sign a contract guaranteeing 100% occupancy; this is simply “insane” (their word not mine). In the apartment rental business an occupancy somewhere about 91% is the level that is generally accepted as being ‘full’ since there are always rooms that need paint, carpet that needs replacing, roofs that are leaking, as well as a whole host of other reasons that prevent 100% occupancy [NOTE: SCSU’s dormitory occupancy averages 95%, which is close to the national median.]. So unless SCSU charges more than the actual cost of the room, for each empty room the university is on the hook for the rent and, as a result, will always lose money.

This spring there are 317 of 453 rooms occupied for an occupancy rate of 70.0%. The administration predicts that next fall 334 rooms will be occupied, increasing the occupancy percentage to 73.7%. At this rate of growth, Coborn’s Plaza will be filled to capacity in 7 years. However, when the increase of 17 students for next year is broken down, 10 of the 17 is due to an expected expansion of the inebriate housing section. This is a unique housing opportunity for students with prior abuse problems that allow them to return to college. The question is, can the expansion of the inebriate housing continue into the future because if the occupancy increases by only seven students per year, it will take 17 years to get to 100% occupancy (just about the time the twenty-year lease ends).

At the April 30, 2013 meeting of the Budget Advisory Group, Patrick Jacobson-Schulte, Associate Vice President for Financial Management and Budget, informed the committee that even under the best scenario of 100% occupancy, Coborn’s Plaza would lose $50,000 annually (the high range was to lose over $100,000 annually). This is disturbing because the chance of Coborn’s Plaza having 100% occupancy is probably in the same range of winning the Powerball lottery (in case you didn’t know, the current odds of winning are 1 out 175,223,510).

MnSCU Board Policy 7.3.5 Revenue Fund Management states that Revenue Fund Facilities (i.e., dormitories) are required to be self-sustaining, which means that they can’t lose money. So in order for the university not to lose money on Coborn’s Plaza, the rents would have to increase significantly since the occupancy rate is only 73.7%. In order to just break even, at the current rate of occupancy, the rent needs to increase by 35.7% to $885 per month (for 12 months a year). The rent is significantly larger if you only want to stay for the two academic semesters.

The ‘good news,’ however, is that since Coborn’s Plaza is not considered a ‘Revenue Fund Facility’ the university rather than the students living in the dorms are on the hook for the extra cash needed to pay the lease. This is probably a very good thing because if the students in the dorms on campus were paying higher rents to fund the people staying in Coborn’s Plaza as well as for the empty rooms in Coborn’s Plaza, there just might be a rebellion on campus.

Originally, Coborn’s Plaza was intended only for upper-level undergraduate students. However, this restriction was quickly eliminated by the need to put bodies into the rooms and first-year students are housed there if they are willing to part with the necessary cash. It is even rumored that St. Cloud Technical and Community College students are being housed there but since it is not easy to get information from the administration, I had difficulty getting confirmation.

St. Cloud State is pretty well known as a kind of ‘blue collar’ university; there are more Hyundai’s and Hondas in the student parking lots than BMWs and Acura’s. So it is logical to ask who made the decision that the university needed luxury off-campus housing where each room has an individual bathroom?

It always seems that administrators are ready to appear at groundbreaking ceremonies and ribbon cutting ceremonies where they can slap each other on the back and congratulate themselves. ,However, has anyone stood up and taken responsibility for what appears to be a horrible financial decision? President Potter’s signature is on the contact.

The original contract called for a 3% per year increase in the lease payments for years 3 through 20. Personally, I wish some of my current investments would do so well. Is there any chance I can still get in on the action? The original contract was apparently ‘renegotiated’ reducing the annual increase to only 2%. Additionally, it looks like the university can get out of the contract after ten years—IF it makes a decision to do so before the end of year five of the lease.

At first glance, the revision of the contract seems like a victory for the University. However, until I can review the entire contract, I am reserving final judgment. But it must be understood that even under the new lease agreement, as it was previously mentioned, with even 100% occupancy, the annual loss will be at least $50,000 and possibly upwards of $100,000. Right now at 73.7% occupancy the university is losing over $1,100,000 per year!

At Meet and Confer on March 28, 2013 between the Administration and Faculty Association, President Potter said that “to admit a mistake would make his leadership team look weak.” He was referring to the closure of SCSU’s accredited Aviation Program and not Coborn’s Plaza. Most of us expect that our leaders continuously rethink their decisions in light of new information and, when warranted make a correction—even if it means admitting a mistake. I kind of like the idea of a leader who admits that they just might be wrong every now and then. To me, it doesn’t make them look weak; it makes them look like a true leader.

So for the ‘Modest Proposal,’ let’s sign an agreement with CentraCare and convert Coborn’s Plaza from dormitory apartments into a secure chemical treatment facility. With Lindsay Lohan as well as other Hollywood personalities available for treatment every few months, we could turn Coborn’s Plaza into a profit center and President Potter could ‘declare victory.’ Perhaps this ‘Modest Proposal’ is too reasonable to be rejected outright so my apologies to Jonathan Swift.

However, the original idea behind Coborn’s Plaza has certainly not been successful and it looks as if the administration has even admitted that it will never be financially successful. Unless, of course, you consider that with even 100% occupancy losing a minimum of $50,000-$100,000 per year is successful. All in all, with an estimated loss over $3,000,000 in the first three years of operation, Coborn’s Plaza could cost SCSU well over $20,000,000 over the twenty-year lease. Many people have lost their jobs over less.

First, what is a university doing getting into the rental property business? Next, it’s astonishing to hear of a university president signing a contract that essentially guarantees a private rental property company a profit. Third, it isn’t unreasonable to question whether these annual losses have necessitated the closing of academic programs. Losing $1,125,000 a year for 3 years doesn’t come out of SCSU’s petty cash fund.

This is only the first shoe to drop at SCSU. It’s a pretty big shoe to drop but it isn’t the only big shoe that’ll drop in the coming days.

9 Responses to “President Potter’s failed apartment initiative”

  • eric z says:

    Ah, Grasshopper. You make progress. ultimately you shall comprehend the entire yin-yang of developers are crabgrass. It is more than a saying. It is an anthem. Dedicated to stupid officials, and private sector fellow travelers (calling themselves “job creators” – a theme as untrue as it is just more propaganda from hired propagandists, paid to say, “Yes, that is one fine idea and always will be”). Developers are Crabgrass. Consultants are sandburs. My bet is you might next look at key consultancies, arrangements, forecasts, and smoke and mirrors. Remember, Minnesota’s public data laws are in your favor, even if recalcitrant disclosure happens vs none at all.

  • Crimson Trace says:

    Next to impossible to refute the letter writer with a straight face. Looks like the taxpayers are being taken for a ride. Where was the oversight for this financial boondoggle? How was MNSCU involved or were they AWOL? Like the idea for a secured inebriated center for CentraCare. We could invite Lindsay Lohan and people who are recovering from doctoring transcripts to stay.

  • Gary Gross says:

    MnSCU was AWOL except for rubberstamping the project.

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