About 300 Wichita State University students had planned to move into Fairmount Towers, a dorm at 21st and Hillside, next month.
They were set to pay more than $1 million in rent for the new school year – money that would go to maintain university housing and, if funds were left over, help pay off the debt on Fairmount Towers.
But they will now live in a privately owned apartment complex that was struggling to attract students.
At least some of the rent money will go to pay a lease with a private development firm, one of whose managing partners is chairman of the state board of regents, which oversees WSU and other universities. It is not clear how much money will go to the private firm because WSU has not released revenue or lease information to The Eagle.
WSU announced this month that it will tear down the 53-year-old Fairmount Towers and move those students to The Flats, a private apartment complex opening this fall on the Innovation Campus. Those students will pay the same rate for housing that they would have at Fairmount Towers.
The Flats, featuring more modern and more expensive apartments, was far below capacity before the announcement: Less than 50 people had signed leases for 286 bedrooms.
University officials say the trade-off improves the quality and location of housing overall and takes out of rotation an aging, less-popular building that they had long intended to close. It also represents further investment in the Innovation Campus, a 120-acre public-private development for research, business and academics on the university’s former Braeburn Golf Course.
“The reality is the developer knew that this would be a win-win because they’d have the cash flow and we’d have a place for Fairmount Towers students,” said Lou Heldman, WSU’s vice president for strategic communications. “This would give us an opportunity to close Fairmount Towers. We didn’t know when an opportunity like that would come along again.”
WSU Housing and Residence Life will run The Flats like a dorm. The developer, now essentially WSU’s landlord, was originally supposed to operate it.
The number of beds at The Flats has increased since regents initially authorized leasing the property last summer. And most students will pay a rate set by the university, not by the market, contrary to previous announcements.
The changing nature of The Flats is due to rapidly evolving plans for the Innovation Campus, said Andy Schlapp, WSU's executive director of governmental relations.
“A year ago, this was our plan. Six months ago, this was our plan,” Schlapp said. “When we start dealing with businesses and whether they want to be on the campus, it starts to challenge the time line of government.”
“These things that we’re tying to get on our campus are moving at a different pace.”
Leased out
The Flats were constructed as private housing, defined under Kansas Board of Regents policy as privately owned residential housing made available for university students or employees.
The university asked the regents to authorize leasing property for private housing to the Wichita State Innovation Alliance. That’s a nonprofit that governs the Innovation Campus.
The proposal was for apartments with approximately 200 beds for upper-level students through a 55-year “ground sub-lease agreement” with MWCB, LLC, to operate and maintain the property. MWCB is a partnership of Wichita businessmen David Murfin, Nestor Weigand Jr., Ivan Crossland and Steve Barrett.
Murfin, who is on the board of regents, recused himself from the discussion and abstained from voting, according to the minutes from the June 15, 2016, meeting. His colleagues authorized WSU to proceed. Murfin, now regents chairman, and other MWCB partners did not return requests for comment.
The Eagle asked WSU for the lease and sub-lease – as well as other agreements between WSU, MWCB and the Innovation Alliance – through the Kansas Open Records Act on Monday afternoon. WSU has yet to provide them.
WSU handling marketing, operations
The university announced last August that the 112-unit apartment complex called The Flats would be constructed. WSU published a news release when The Flats began leasing, touting modern apartments with an outdoor pool, exercise room and private clubhouse for students and employees of companies like Airbus on the Innovation Campus.
WSU Strategic Communications’ team developed The Flats’ name, logo, website, social media, brochures and signs “to help market and fill the Flats by next fall,” according to a portfolio on its web-page. The developer paid WSU $37,700 to market The Flats, Heldman said.
“We think the Innovation Campus is a tremendous selling point for students and their parents,” Heldman said of their marketing efforts.
University housing and residence life staff also will operate The Flats. MWCB originally was supposed to operate it. Heldman said the developer asked the WSU housing office to “take on the housing responsibilities.”
“That’s really part of the evolution of this agreement,” he said. “The student housing experts on our staff are clearly good at what they do, and the developer took advantage of that.”
When asked in a follow-up e-mail if Housing and Residence Life would be paid for its work with the private apartment building, Heldman replied: “Since WSU is leasing and operating the building as a residence hall, it will be managed by Housing and Residence Life the same as Shocker Hall,” the university’s main dorm.
State rules on private housing
The Kansas Board of Regents regulates private housing for its state universities. Regents must directly authorize state universities if they want to:
▪ Enter into written, verbal or implied agreements related to private housing.
▪ Give preference to any owner or operator of private housing.
▪ Guarantee occupancy in or payments for private housing.
▪ Provide public funds for the supervision, maintenance or operation of private housing.
Schlapp told Regents President and CEO Blake Flanders in a July 7 e-mail that WSU wanted to move Fairmount Towers students into The Flats. Under KBOR policy, Flanders can approve agreements related to private housing with terms shorter than a year.
Flanders thanked Schlapp for expressing WSU’s intentions and cited the KBOR policy that he could approve short-term private housing agreements. But that e-mail provided to The Eagle was dated July 18, several days after WSU announced it was moving ahead.
“The dialogue with the CEO of the regents and the board staff is continuous,” Heldman said of the timing of discussions with KBOR.
Schlapp said WSU would visit with the regents in September to refine a future agreement on The Flats.
Asked if WSU guaranteed occupancy for the developer if The Flats had not filled, Heldman replied “no.”
“Our attorneys have looked at this and think we’re within the KBOR rules in the overall arrangement,” Heldman said.
Regents spokeswoman Breeze Richardson said the board has worked alongside WSU throughout the process.
“There is nothing to indicate that WSU has violated board policy in any way,” Richardson said.
‘Rates were high’
When the apartment complex was announced, rent prices were supposed to be set by the market, not by the university.
But prompted by cost concerns, the developer changed rate structures in May to include electricity, a lower deposit and nine- and 12- month lease options to residents.
One-bedroom apartments at The Flats, which are sold out, cost $940 per month per person on a nine-month lease. That’s $8,460 from August to May, the end of the school year, according to The Flats’ website.
A four-bedroom apartment is $800 per month per person on a nine-month lease — $7,200 from August to May. Monthly rates on a year-long lease range from $720 to $845, depending on the type of apartment.
Heldman said the biggest reason The Flats struggled to lease was students couldn’t picture themselves in apartments still under construction. But he did say cost was a factor.
“The first set of rates were high for the market and the developers … were getting enough of that feedback,” Heldman said. “(The decreased rates) came pretty late in the spring when people had already signed housing contracts elsewhere.”
Students at The Flats who signed up for Fairmount Towers will pay what they were supposed to pay at Fairmount Towers, which were lower rates set by the university. Three-hundred displaced students would have paid between $1.3 million and $1.8 million for two semesters at Fairmount Towers, based on 2017-2018 housing rates.
People who originally signed leases at The Flats with the full rates won’t see a rent reduction, but will have access to better amenities like underground parking and larger beds.
Where the rent goes
The university still owes $3.3 million on Fairmount Towers, which it is scheduled to pay from general university revenues through June 2021. The capital plan approved by the regents and adopted state budget also includes $1 million to raze Fairmount Towers.
The day before the July 14 announcement that Fairmount Towers would close, the WSU board of trustees was asked to pay the remaining debt service on Fairmount Towers and raze it. But the board approved about $4 million in infrastructure on the Innovation Campus over five years instead.
“They decided they wanted to commit the funds but in a different way,” Heldman said. “That works out fine because you end up with the same amount of money freed up to take care of Fairmount Towers.”
In the past, when Fairmount Towers generated money beyond what was needed to operate it, that money would go toward paying the principal and interest on its debt, said WSU spokesman Joe Kleinsasser.
Schlapp also said in his July 7 e-mail to Flanders that “revenue from Fairmount had been used to service the debt on Wheat Shocker and other housing projects.”
Revenue from residents of The Flats, including the Fairmount Towers students, will go toward paying off the lease for the complex with MWCB, WSU’s Vice President for Student Affairs Teri Hall told The Eagle on July 14.
The Eagle asked WSU on Monday how much rent revenue is expected from The Flats’ original leases and students originally set to live in Fairmount Towers, as well as a breakdown of students by year and rooms by apartment type. WSU has yet to provide those records.
‘Make decisions much quicker’
Heldman said there will be no shortage of housing options for students, even with Fairmount Towers out of the rotation. And The Flats complex has room to add extra buildings.
“More housing can be built if there’s demand,” Heldman said. “Supply may lag behind demand, but never by more than a year.”
Heldman said the entire campus benefits if more students live on the Innovation Campus.
“For attracting and retaining students and for the future of the university, this seems like a very good idea,” he said.
Schlapp said the Innovation Campus is growing “much quicker than anyone ever imagined,” altering how rapidly choices like closing Fairmount and leasing The Flats are made.
“It’s forced the university to make decisions much quicker,” Schlapp said. “This is a very dynamic process.”
Daniel Salazar: 316-269-6791, @imdanielsalazar
This story was originally published July 21, 2017 8:55 PM.