UWM Real Estate Foundation (UWMREF)
UWMREF constructed two student housing facilities for the benefit of the University of Wisconsin Milwaukee in 2007 and 2010. RiverView was built to serve 470 first-year students and Cambridge Commons was built to house 700 students including 200 sophomores and the UWM Foundation Offices.
The properties were built with a combination of short term bank debt and subordinate financing. In 2015 UWMREF approached Geoffrey Nauth and the predecessor to Midwest Credit Lease seeking long term fixed rate financing for both facilities based upon a long term lease from the University.
In August 2016 Mr. Nauth placed the requested financing with a national life insurance company at a very attractive rate of less than 4%. The term of the loan and the amortization was 30 years, eliminating any interest rate risk inherent in renewing short term notes. In addition, the collateral for the loan was limited to the lease and the property, eliminating any general receipts pledge from the Foundation or the University. No financial covenants were required on the loan other than those typically utilized in lease transactions.
Valuation of the residence halls and the loan amount was based upon the credit of the University as lessee and the terms of the lease, allowing a higher loan to value ratio than typically employed in commercial real estate loans. This reduced any cash donations required from the Foundation.
Execution of the loan required only three parties, UWMREF, the predecessor to Midwest Credit Lease as the Placement Agent/Broker, and the life insurance company investor. The cost of execution and the time required to close was far less than a public bond issue.
This Credit Tenant Lease financing will insure that UWMREF and UWM will enjoy the benefits of these properties for many years to come. The affordability of this financing which will not change as interest rates change or the economy falters. As student housing rents increase the income will be accretive to the University’s annual operating budget.