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Oklahoma uni sued over struggling luxury dorm project

New York

THE owners of a struggling luxury dormitory at the University of Oklahoma sued the college on Monday for allegedly breaking a commitment to rent retail and parking spaces at a 1,230-bed complex at its flagship campus.

Provident Oklahoma Education Resources - a non-profit that financed the US$250 million project with municipal bonds - sued the university in state court, saying that if it had known the school would break its promise it never would have built the dorm, which includes a theatre, a hair salon and a fitness centre.

The company is also seeking more than US$250 million in damages.

"Provident would not have agreed to construct the additional facilities unless it could be assured that the project would be financially viable," the lawsuit said.

"Moreover, bond investors would not have purchased the bonds without being assured of a revenue stream from the commercial space and parking facility sufficient to justify the cost of their construction."

Colleges from Texas A&M to Kean University in New Jersey have tapped non-profits to finance student housing in an effort to hold down debt as they cope with declining state aid and pressure to limit tuition increases.

The University of Oklahoma case highlights the risk of projects that rely on third-party support to ensure bondholders are repaid.

The offering statement for the bonds makes clear numerous times that the bonds are not obligations of the university or the state and that the debt is backed solely by rents.

The commercial and parking rents make up about a third of project revenue while student rents make up the rest.

The dormitory at the University of Oklahoma's flagship campus in Norman, known as Cross Village, has struggled to attract students and in late July suffered another blow when the university notified Provident that it wouldn't renew the annual leases. BLOOMBERG