UI is engineering a new way to finance construction projects

UI is engineering a new way to finance construction projects

URBANA — A new teaching facility for the University of Illinois College of Engineering, up for trustee approval today, would accommodate 10 to 15 percent enrollment growth in high-demand engineering programs over the next decade, college officials say.

The $75 million project, to be built just west of the Grainger Engineering Library, would be bundled with a new $20 million feed mill on the south end of campus through a relatively new construction-financing approach used only a few times by Illinois public universities.

As state funding for capital projects has dwindled, universities are turning to other financing methods to pay for new buildings, including public-private partnerships.

Under that model, a nonprofit entity is created that in turn contracts with a developer, construction contractor, architect and engineer, and uses the state's Illinois Finance Authority to issue bonds to pay for the project. The university doesn't directly contract for those services but benefits from the tax-exempt financing, and the contractor assumes the risk for finishing the project on time, according to the UI.

The buildings are owned by the nonprofit entity, and the university rents space there, with the rent covering the annual bond payments. After the bonds are paid off, the university takes over ownership of the buildings. The nonprofit, in turn, leases the ground from the university.

The primary advantage is that projects can be built much more quickly, shaving seven to 10 months off the timeline, which saves money, too, said Michael Bass, senior associate vice president and deputy comptroller.

"It's designed, financed and constructed by the private sector," Bass said.

The design is done collaboratively with the developer, eliminating a separate step in the usual process used by the university, Bass said.

The partnerships take advantage of private-sector capital and construction efficiencies and avoid the state's "overly regulated" capital procurement process, according to a UI website.

The same approach has been used to finance residence halls and cafeterias at Northern Illinois, Northeastern Illinois and Illinois State universities. And the UI Chicago recently completed work on an $80 million project that includes a residence hall and academic space.

Project cost: $95 million

Today, the board will be asked to give administrators authority to approve ground leases and other documents required to develop, lease and manage the feed mill and engineering facility. They would be built and owned by Provident Foundation Inc., a nonprofit organization that works with universities across the country on similar projects.

The UI solicited proposals from developers in February and selected Vermillion/Campbell Coyle as lead developer over six competing firms. Skidmore, Owings and Merrill is providing architectural services. The board entered into an interim services agreement with the developer to design the projects; the developer and Provident will sign an agreement to build them based on the UI's plans, officials said.

The total project cost is $95 million for the two facilities. The UI also contributed $9 million up front to reduce borrowing costs, officials said. The university will cover operating and maintenance costs for both buildings, which will be owned by Provident for 30 years and then revert to the university, or sooner if the bonds are paid off early, Bass said.

The arrangement was approved by the state's higher education procurement office, officials said.

'At peak capacity'

The Engineering Instructional Facility, at the southeast corner of Wright Street and Springfield Avenue, will provide 27 classrooms and lecture halls to accommodate growth in high-demand departments and expand classes that are now over capacity, officials said. Demand is particularly high in computer science, mechanical engineering and electrical and computer engineering, said Mike Devocelle, associate engineering dean for finance and administration. The college turns down thousands of qualified computer science students each year, he said.

"Our facilities are at peak capacity," he said. "This is an opportunity both to increase the number of classrooms we have and the size of those classes."

The new building will provide state-of-the-art classrooms for "active learning," group study spaces and remote capabilities for students based in Chicago, he said. It will also allow the college to convert some older classrooms into much-needed research space, he said.

It will also be used by other departments outside the college, including math and statistics, not just engineering, officials said.

Feed mill coming in 2020

To save money, the project was paired with the new feed mill, which was on a similar timeline. Construction on both projects is slated to start in 2019, with the feed mill finished in spring 2020 and the engineering building in spring 2021.

The Feed Technology Center will be located on Race Street south of Curtis Road in Urbana. It would replace the 91-year-old feed mill on St. Mary's Road, just south of State Farm Center, where developer Peter Fox has proposed a community ice arena. The new facility will provide modern feed processing and support facilities for animal sciences nutrition research.

Bass said the $20 million includes $17.8 million for the feed mill and about $2 million for farm service buildings "integral" to its operation. The feed mill price previously had been quoted at $11 million to $14 million, with $6 million raised to date. Bass said inflation accounted for part of the increase.

On the agenda

University of Illinois trustees will meet in open session starting about 9:30 a.m. today at the Chicago campus's Student Center West, 828 S. Wolcott Ave. Among the agenda items:

— A 16.5 percent increase in the UI's state funding request, to $692.5 million, still below 2015 funding levels. Much of the $97.5 million increase — about $69 million — would go toward salary improvements and recruitment and retention of faculty; $10 million would add to student scholarships.

— A $100,000 performance bonus for UI President Tim Killeen for the third consecutive year. Killeen's base pay would remain at $600,000, keeping his annual compensation at $700,000.

— The appointment of bioengineering Professor Rashid Bashir, former executive associate dean for the Carle Illinois College of Medicine, as dean of the College of Engineering. Bashir will earn $423,500 annually.

— The appointment of Anthony Augustine as vice chancellor for innovation at the UI Chicago, a new $250,000 position that will be funded by income from campus royalties. He is now associate vice president for economic development and innovation for the UI system, working on the new Illinois Innovation Network.