Photo above: Rick Gaumer, vice president for Business and Finance speaks at the Oct. 7 groundbreaking as President Jake Schrum looks on.
By Scott Robertson
Emory & Henry College broke ground Oct. 7 on a $12.5 million residence hall construction project to create 197 more beds for on-campus student living. Eight small residence halls, including six apartment-style halls, and a community center will be added to two existing residence halls in an area known as The Village.
It’s a “lemonade from lemons” story, in that the funding for the project came available because the college had been investing so much in another area that private lenders were becoming, as the college’s chief financial officer characterized, “antsy.”
“We have been ramping up our school of health sciences,” explained Rick Gaumer, vice president for Business and Finance. “Since 2011 we have been ramping that up and unfortunately you have to spend money to do that. So we had some operating losses as an institution during 2012, 2013 and 2014. The traditional lenders were getting antsy, so they were asking us to find a refinancing source.”
Enter the United States Department of Agriculture’s Rural Development Community Facilities Direct Loan and Grant Program, which, the USDA says, “provides affordable funding to develop essential community facilities in rural areas.” The college found that if it were to enter into an effort that could be categorized as rural economic development, the USDA would not only loan the school the money for that project, it would also be willing to refinance the school’s existing debt, and do so at a better rate. “So we had some issues to deal with,” Gaumer said, “but we found that the USDA option allowed us to do some economic development here in our region along with the refinancing of our debt.”
It quickly became obvious that this approach would be a win-win for everyone, Gaumer said, “The traditional bankers are now out of our picture and we have the USDA money.”
“Because we are a rural area in Emory, Va., we were able to qualify for these loans,” Gaumer added. “I talk to the other CFOs of other colleges in Virginia and some of them can’t do this because they’re in a bigger city.”
Perhaps the biggest stroke of good fortune isn’t the fact that the college has been able to cheaply finance new construction on campus. It’s that the school has locked in a very low interest rate for the next 40 years. Private lenders generally want to renegotiate the rate every five years or so on a 40-year note. The USDA locked in the 2.375 percent rate for the life of the loan.
“We got lucky on the interest rate because it is based on a five-year average of long-term treasury bills,” Gaumer said. “Even though we may be seeing increases in short-term rates, the long-term rates are continuing to go down. This window of opportunity isn’t going to last. We just kind of hit it right. We’re very fortunate.” Interest on the traditional loans had been running in the 4 to 5 percent range, Gaumer said. “They weren’t really that bad, but they were traditional loans.”
While the total refinancing package is in the $51 million range, the USDA isn’t handling every penny directly. “(The USDA) wanted a local bank to take $5 million of that package,” Gaumer explained. “So we have a $5 million USDA-guaranteed loan with First Bank & Trust. First Bank has the USDA guaranteeing 90 percent of that loan, but it’s really a loan between us and First Bank & Trust. (The USDA) wanted local bank and local skin in the game, so we’re happy that (First Bank & Trust) wanted to step up and take that role. It’s not a high-risk role because the USDA is standing behind it, but that piece of the overall package is with First Bank & Trust.”
The project qualifies as economic development because residence halls generate income. Students pay to live there. It qualifies as rural economic development because Emory, Va., has a total population of only 1,251 people as of the 2010 census.
The project will be organized around a central quad with the community center as the focal point. The project is approximately 55,000 square feet. The college will also create additional parking for Village residents.
“Our campus residence halls are near capacity,” said Lacey Southwick, director of residence life. “With the continued trend of growth in our undergraduate student body, we need to add more on-campus housing in order to accommodate the demand for an Emory & Henry education.”
Each apartment unit will include a shared living room and kitchen along with three bedrooms and two full bathrooms. The community building is designed to accommodate 300 students and house laundry facilities, a mailroom, a fitness center, a recreation area, a community kitchen and a collaborative meeting space. The community building also will include three various-sized classrooms and an apartment for the resident director.
The new structures will incorporate design and finishes that closely match other buildings on the historic campus. Completion for the project is scheduled for fall 2017. The project is being built with environmental sustainability in mind. Buildings will include recycling stations, a highly insulated exterior wall design, a highly efficient mechanical design, LED light fixtures with energy efficient control systems, and an innovative storm water management design.
“Students who live on campus are more likely to feel as if they are fully integrated into our college community,” said President Jake Schrum. “These modern apartment style halls will allow our upper-class students the chance to get a glimpse of life after college while they continue to participate in campus life.”
In addition to the revenues provided by residents of the Village development, the college should soon turn around the situation which started the entire chain of events. The Health Sciences school, the funding of which caused private lenders to become antsy, will begin taking in revenue soon. The ribbon-cutting for the school was held Sept. 30.