WERNER UNIVERSITY CENTER, PHASE III, WOU

Summary

The Werner University Center is the student union at Western Oregon University. It also serves as the campus community center for University staff, alumni, and guests. Constructed in 1960-61, the building was remodeled in 1972 and again in 1986. A new master plan for the facility was completed in 1995 and WOU began the first of a three-phased project to respond to several years of steady enrollment growth, code problems, and physical obsolescence. The current request for Phase III funding will permit WOU to accelerate the construction schedule to bring the remaining non-renovated areas of the building up to code for fire/life safety and will address handicapped access issues. The funding requested is $2.95 million of Article XI-F(1) bonds to be repaid by the Student Building Fee Debt Reserve over 20 and 30 year terms.

Staff Report to the Board

Western's Werner University Center serves as both the student union for WOU and as a central community resource for the larger community in the Monmouth-Independence area. Beginning in 1995, WOU undertook to expand and modernize the facility. Phase I was a $2.5 million basic upgrade project that included a new loading dock, expanded bookstore warehouse, recycling center, and a new food court. A new north entrance was added to the food area. Phase II continued with a $3.5 million addition to the campus bookstore; this addition increased space by 40 percent with a conference center and eight new conference rooms, as well as renovated student and career services space. A new main entry facing North Monmouth Avenue, the primary campus drive, was added. In each project phase, code compliance and facilities obsolescence issues were addressed.

WOU is now requesting an acceleration of the third and final phase of the project, which was included in the OUS 1999-2001 capital construction program request. This request was approved by the Board at its July 1998 meeting and submitted to the Department of Administrative Services in September. WOU's project will be financed through the issuance of Article XI-F(1) bonds, to be repaid by the student building fee debt service reserve. The project was selected as the Board's number one student building fee-funded project for 1999-2001.

WOU's request for approval to accelerate the construction schedule is in response to two changed conditions. First, the local building inspector has required WOU to commit to a near-term schedule to address the remaining fire/life safety code issues in the unrenovated space in the building or face an order requiring closure of the entire building until the code issues are corrected. Second, as Phase II is ahead of schedule, Phase III could move forward in mid-winter 1998 and thus address the critical code needs without extending the period of disruption to the building occupants.

In Phase III, fire sprinklers will be installed throughout two floors of student offices and meeting rooms that remain unrenovated. Two-story fire walls and fire doors will also be constructed. In addition, the main catering kitchen, now nearly 40 years old, will be completely renovated, and a new southwest public entry will be added to the Pacific Room. The Pacific Room is the largest multi-purpose facility in the Monmouth/Independence area; as such, it is often rented for community functions, thus generating income for the student union. The catering kitchen is essential to renting the Pacific Room for these functions. Exhibit A displays the sequencing of construction projects since 1960 for the Werner University Center.

The estimated cost of the final phase is $2.95 million, which would be funded by a combination of 20 and 30 year term Article XI-F(1) bonds available for allocation to this project. Annual debt service of $201,000 would be paid from the Student Building Fee Debt Service Reserve, with the initial payment on June 30, 1999. The Controller's Division has confirmed that there is sufficient capacity in the Reserve to carry the future debt service for this project. If the Board of Higher Education and the State Emergency Board both approve acceleration of this project and the associated project expenditure limitation for Article XI-F(1) bonds, the project will be deleted from the OUS 1999-2001 capital construction program request.

This project is being presented before the Emergency Board at its November 20, 1998 meeting because it was not included in the 1997-1999 capital construction program and thus requires specific approval by that body for expenditure limitation for Article XI-F(1) bonds above $1 million. The request to the Emergency Board is being made contingent on the approval by the Executive Committee. Ramifications for delaying the project request to the December Board meeting and the January Emergency Board meeting would be twofold: 1) it would cause WOU to absorb additional costs associated with starting and stopping what is, in essence, a continuation of a multi-phased construction project, and 2) there is a definite possibility of building closure, as mandated by the local building inspector, unless code requirements are met in the near future.

Staff Recommendation to the Executive Committee

Staff recommends that the Executive Committee approve acceleration of the schedule for construction of the Western Oregon University Werner University Center Phase III Project with a total project cost of $2.95 million, and that the Board authorize the Vice Chancellor for Finance and Administration to seek authorization from the State Emergency Board for a total project expenditure limitation of $2.95 million in Article XI-F(1) bonds. (The full Board will ratify the Executive Committee's action at its next regular meeting on December 18, 1998).

EXECUTIVE COMMITTEE ACTION:

Exhibit A
Sequence of Construction and Renovation Projects
WOU Werner University Center

Year GSF Affected Student Population Action
1960 46,000 1,200 Building completed in October.
1972 No Change 3,500 Commons converted to the Pacific Room and Coffee Shop. Building is carpeted throughout.
1986 10,000 2,800 Student gathering center added on lower level. Bookstore expanded and moved to upper level.
1996-99 33,900 est. 4,252 Addition and remodel in three phases:

Phase I: Addition of new service areas, plus new food court, and dining room.

Phase II: Remodel and addition to front of building. Expanded bookstore, conference center, and plaza.

Phase III: Scheduled for February 1999. Remaining fire/life safety issues brought up to code. New southwestern entrance to Pacific Room.


AMENDMENT TO RIVERFRONT RESEARCH PARK GROUND LEASE, 1600 MILLRACE DRIVE, UO

Summary

In May 1992, the Board entered into a long-term ground lease for the property at 1600 Millrace Drive, as part of the University of Oregon Riverfront Research Park in Eugene. Subsequently, an office building was constructed and occupied. Under the terms of the original lease, beginning in year seven, rent was to be calculated based on the value of the property. Through negotiations, both the University and Research Park Associates, Inc., the lessee of the land, have concluded it is in their best business interest to establish a base rental rate to be adjusted each year. They have identified a mutually agreeable annual rent, $54,686, to be adjusted annually based on the Consumer Price Index. The proposed rent method is similar to the method used in the more recent ground lease for 1800 Millrace Dr., approved by the Board in 1997. The change in rent calculation method requires changes to the method of determining fair market value in the event of condemnation; these changes are included in the proposed amendment.

Staff Recommendation to the Executive Committee

Staff recommends the Executive Committee authorize the President and Secretary of the Board to sign amendments to the ground lease for the property at 1600 Millrace Drive, in the University of Oregon Riverfront Research Park in Eugene, adjusting the rental method and other resulting changes. (The full Board will ratify the Executive Committee's action at its next regular meeting on December 18, 1998).

EXECUTIVE COMMITTEE ACTION:

NOTE: THE FOLLOWING ITEM HAS BEEN POSTPONED. THE EXECUTIVE COMMITTEE WILL NOT DISCUSS THIS, NOR WILL IT TAKE ACTION ON NOVEMBER 20.
URBAN CENTER, PHASE II (aka US WEST BUILDING ACQUISITION), PSU

Summary

In April 1996, the Board of Higher Education approved the acquisition of a facility then known as the US West Building1, located one block from the Portland State University campus at SW Harrison and SW Fourth Streets in downtown Portland. The approval involved entering into a joint ownership with Gerdling/Edlen Development Company, which held an option to purchase a 195,000 square foot facility, including a 389-space parking facility and a large landscaped open area immediately adjacent. At the time, the building was owned by the US West Corporation.

After project approval, the Board entered into a joint ownership agreement under which the Board would acquire ownership of the facility in two stages. Stage one, already completed, included acquiring the parking structure and approximately 117,000 square feet of space for laboratories, classrooms, offices, meeting rooms, and a communications/data processing center. Approval for stage one provided for a total project cost of $14.37 million, including $12.15 million for acquisition, and the remainder for future improvements for the School of Engineering and Applied Science. Article XI-F(1) bonds were approved as the funding source, to be repaid by rental income and parking revenue.

Stage two of the proposal gave the Board the option to acquire remaining space in the building, after all the vacant space in the stage one acquisition had been leased, for a total amount not to exceed $6.6 million plus closing costs. The combined approved project costs totaled $20.97 million.

This project subsequently was approved by the Legislative Emergency Board with an Other Funds expenditure limitation of $20.97 million for issuance of Article XI-F(1) bonds and/or use of gifts. As noted, the acquisition was expected to occur in two phases. The Emergency Board then directed the Department of Administrative Services to unschedule the stage two portion of the expenditure limitation ($6.6 million plus closing costs) pending a report to either the Joint Ways and Means Committee or the Emergency Board on the financing plan for stage two when the option to purchase was ready to be exercised. The deadline set by the developer for exercising the option has been extended to January 5, 1999.

The financial report has now been prepared by PSU and is scheduled before the Emergency Board at its November 20, 1998 meeting (refer to next section). The request calls for a rescheduling of the expenditure limitation for acquisition to $6.37 million of Other Funds, $230,000 less than the Other Funds limitation originally approved and left unscheduled.

In conjunction with the approved project, new approval is sought for a $2.5 million project to remodel space in stage two of the acquisition for one tenant (Korea University's World Peace Center), and for PSU functions. The remodeling project will also be presented before the Emergency Board at its November 20 meeting because it was not included in the 1997-99 capital construction program and thus requires specific approval by that body for expenditure limitation for Article XI-F(1) bonds above $1 million. The request to the Emergency Board is being made contingent on the approval by the Executive Committee. If the additional request is approved, the two elements of the stage two project total $8.87 million.

The terms of the Memorandum of Understanding between Korea University and PSU call for Korea University to deposit $4.8 million with PSU no later than December 1, 1998. Of this amount, $3.2 million will be applied by PSU toward the costs of acquisition of stage two of the former US West Building, and the remaining $1.6 million will be used to cover costs of remodeling the WPC space and some initial operating costs. (The WPC will be responsible for raising all operating funds for its program.) PSU is then scheduled to execute the option agreement with the seller of the property before January 5, 1999. This timeline results in the necessity to request various reviews and approvals during the November meeting dates of both the Executive Committee of the Board and the Legislative Emergency Board, contingent on the full Board approval.

Staff Report to the Board

Part I - Urban Center Phase II (aka US West Building) - Financing Plan for Stage Two Acquisition. The Board has an option to purchase the balance of the approximately 80,000 square feet of space in the US West Building from the Urban Center Improvements, LLC and Peter K. McGill, as represented by Gerdling/Edlen Development Company. The option, originally scheduled to be exercised by June 1998, has been extended to January 5, 1999 and PSU is now ready to proceed with the acquisition of the remainder of the building. The purchase price, including closing costs, is $6.37 million, which is below the authorized expenditure limitation for the acquisition of stage two of the facility. This acquisition will result in the Board owning the entire building and land.

Funding for this purchase will be from three sources: (a) $2.92 million of Article XI-F(1) bond proceeds, to be repaid from rental revenues from an existing corporate tenant, Pacific Power & Light Company, whose lease expires in 2006; (b) $247,645 of PSU institutional funds; and (c) $3.2 million from a prepaid lease with Korea University for the WPC, a planned, private, not-for-profit corporation, which will be provided to PSU no later than December 1, 1998. The WPC will lease 25,000 square feet from PSU beginning in the summer of 1999 for a period of 25 years; an additional 7,600 square feet will be leased to the WPC beginning in 2006. Currently, most of the additional space is leased to the Portland Development Commission, which is moving to different facilities in 1999. The program of the WPC is explained in greater detail in Exhibit A; it is awaiting final approval of its 501(c)(3) status from the U.S. Internal Revenue Service.

The debt service on the Article XI-F(1) bonds will be provided from rental income from a lease to a major corporate tenant, Pacific Power & Light Company, currently occupying the space to be acquired. The rental stream will be backstopped by excess rental payments to create a six-month reserve. Further, the Board has existing bonding authority under House Bill 5036, Chapter 556, and sufficient Article XI-F(1) bond proceeds available to allocate to this project for this purpose.

Part II - Urban Center Phase II (aka US West Building) - Request for Stage Two Remodel. In addition to the acquisition, PSU seeks Board approval of $2.5 million of Other Funds for a new project element not contemplated in the earlier approval the remodel of a minimum of 25,000 square feet of space for the WPC and 6,000 square feet of space for PSU functions. The terms of the prepaid lease for the WPC include the provision of $1.6 million of additional funds to cover remodeling costs; another $900,000 will come from University sources, principally funds to be used for auxiliary purposes. The PSU space to be remodeled will include a conference center, the Professional Development staff offices, and meeting rooms.

In sum, the funding for the combined requests is as follows:
Project Element Article XI-F(1) Bonds Other Funds TOTAL
Stage Two Acquisition

(previously authorized up to
$6.6 M plus closing costs, 4/96)



$2,922,355


$ 3,447,645

PSU: 247,645

WPC: 3,200,000



$6,370,000
Stage Two Remodel

(new request)

$ 2,500,000

PSU: 900,000

WPC: 1,600,000

$2,500,000
REVISED TOTAL $2,922,355 $ 5,947,645 $8,870,000


1. The US West Building has been renamed the Urban Center, Phase II; it is distinctive from the Urban Center, Phase I Project, a $33 million project that is now under construction a few blocks away from the site of the US West Building.

Staff Recommendation to the Board

Part I - Urban Center Phase II (aka US West Building) - Stage Two Acquisition

No action is required of the Board concerning the review of the financing plan presented to the Legislative Emergency Board for the acquisition of stage two, except to acknowledge the reduction in the budget cost and expenditure limitation required for the purchase from $6.6 million to $6.37 million.

Part II - Urban Center Phase II (aka US West Building) - Stage Two Remodel

Staff recommends that the Executive Committee of the Board approve the related project, Portland State University Urban Center Phase II - Stage Two Remodel for a total project cost of $2.5 million and authorize the Vice Chancellor for Finance and Administration to seek authorization from the Legislative Emergency Board for a $2.5 million project expenditure limitation in Other Funds. (The full Board will ratify the Executive Committee's action at its next regular meeting on December 18, 1998).

EXECUTIVE COMMITTEE ACTION:

Exhibit A
WORLD PEACE CENTER AT PORTLAND STATE UNIVERSITY

The World Peace Center (WPC) originated from the conjunction of several events. As background, it is helpful to know that the new president of South Korea, Kim Dae-Jung, has long been associated with significant human rights campaigns and has been nominated nine times for the Nobel Peace Prize. For many years, it has been his plan to develop a means by which the climate of relations between South Korea and North Korea could be improved, possibly leading to the eventual reunification of the two countries. In part for his work to promote peace, PSU bestowed an honorary doctorate upon President Kim Dae-Jung in 1995.

A number of PSU faculty members have long had personal interests and research programs that touched on the problems of newly-evolving democracies. Several have worked with students from these countries who were studying at PSU. One such faculty member is Professor Douglas Hall in the School of Engineering. Professor Hall has worked with a number of South Korean students, helping them adjust to the American university system, pass English proficiency examinations, and succeed in their studies.

Through one of these students Professor Hall became acquainted with Dr. David Jun, a professor and former department chair of the Computer Science Department at Korea University, a private university located in Seoul, South Korea. Professor Jun and Professor Hall worked with South Korean leaders to evaluate PSU's ability to assist North Korea and other emerging nations to better integrate their economies into the widening international commerce. PSU's strong programs in business, engineering and Asian Pacific affairs, together with a Pacific Rim location, made PSU the first choice location for the desired cultural and academic exchange center. With the personal interest and involvement of President Daniel Bernstine, an agreement to develop the center at PSU was crafted with Korea University.

In the summer of 1998, PSU signed an agreement with Korea University to establish the World Peace Center to be located on the PSU campus. The WPC will serve both as a research center and as a clearinghouse for cultural and academic exchanges. The WPC has applied for 501(c)(3) status. As such, it will have academic linkages with several PSU departments, but it will function independently.

The primary focus of the WPC will be to develop and carry out a variety of projects to promote world peace. In its start-up phase, the Center will focus its efforts in selected regions of the world where the threats to peace are greatest. North Korea is one of these areas.

PSU will derive a number of benefits from its partnership with the Center:

  1. New teaching and research opportunities for PSU faculty both in South Korea and North Korea are anticipated. Programs will include courses from PSU's Free-Market Business Development Institute, the Engineering Management Program, and the Electrical and Computer Engineering Department. These introductory courses will encourage motivated students to come to PSU for more advanced courses.
  2. The Center will work toward being able to sponsor 35 North Koreans by January 2000. Within another two years, the Center plans to increase the number to 100 full time students.

    However, the WPC is not focused exclusively on the issues of North Korean integration into the world economy. The programs being developed by the WPC are applicable to many other countries that are now moving toward a more mixed economy. The WPC expects to require some time to set up exchanges, but WPC is moving ahead vigorously and will be even more effective when fully established at PSU.
  3. There are financial aspects of the relationship with WPC beneficial both to PSU and WPC. The up-front funding of space for the WPC will make it possible for the University to acquire the second half of the building formerly known as the US West Building. The WPC funding to PSU will be secured before the acquisition, scheduled to occur in early January. The acquisition of the building adds an asset to state ownership, preserving the opportunity for PSU's engineering programs to expand at a later date. The space leased to the current major tenant would cost substantially more to buy in today's market if it were not being acquired at the option price contained in the original agreement with Gerding/Edlen Development Company.

INVESTMENT COMMITTEE RECOMMENDATION FOR INVESTMENT MANAGEMENT FIRMS

Summary

At the November 21, 1997, meeting, the Board approved a recommendation from the Board's Investment Committee to request Oregon Investment Council (OIC) approval for changes in investment managers for the equity portion of the Oregon University System's Endowment Fund.

The search for a new equity investment manager(s) was initiated by the Board in April 1996. Since that time, the Investment Committee and Chancellor's Office staff have been working with R.V. Kuhns and Associates, Inc., OUS investment consultants, to evaluate investment managers; conduct interviews with representatives from potential equity management firms; and to recommend three new equity investment managers, after Board approval, to the Oregon Investment Council. The investment managers and funds approved by the Board in November 1997 included:

1. Domestic Equities: Barclays Global Investors (BGI), Alpha Tilt (Enhanced Index) Fund

2. Small-Cap Securities: Becker Capital Management, Small-Cap Equity Fund

3. International Equities: T. Rowe Price International, Inc., (Foreign) Equity Fund

The OUS request for a change in investment managers went before the OIC in August 1998. The OIC ratified the recommendation to divest the equity portion of the OUS Pooled Endowment Fund from the Common Fund and to select new investment fund managers. The OIC approved the Board's recommendation for new domestic and international equities fund managers. However, the OIC replaced the recommended small-cap securities manager, Becker Capital Management Small-Cap Equity Fund, with the BGI Russell 2000 Index Fund. This change was made to address the OIC's goal of providing passive instead of active management for domestic, small-cap investment. Chancellor's Office staff and R.V. Kuhns consultants discussed with the OIC the performance and efficiencies of active versus passive management for the small-cap portion of the equity fund, and the OIC agreed to revisit the issue at a later date.

OIC approval of the Board's recommended asset allocation is a significant and positive milestone. Research indicates that more than 90 percent of an investor's return is attributed to asset allocation. Investment projections performed by R.V. Kuhns during the search for new management firms have been based on market indices rather than manager performance. Thus, despite the OIC's replacement of the small-cap securities manager, the expected return for the portfolio will not change relative to the Investment Committee's original recommendation.

Investment Committee Recommendation to the Executive Committee

The Investment Committee recommends that the Executive Committee approve, for immediate implementation, the Oregon Investment Council's approval of new investment managers for the equity portion of the OUS Pooled Endowment Fund as follows ­ 65 percent to Barclays Global Investors, Alpha Tilt Fund; 20 percent to Barclays Global Investors, Russell 2000 Index Fund; and 15 percent to the T. Rowe Price International Mutual Fund. (The full Board will ratify the Executive Committee's action at its next regular meeting on December 18, 1998).

EXECUTIVE COMMITTEE ACTION:

JOINT APPROPRIATION REQUESTS

At the Joint Boards Working Group meeting on September 18, 1998, Chancellor Cox and Commissioner Bassett agreed that their staffs, working together, would develop a joint vision statement regarding access to postsecondary education through technology and regional partnerships. The vision statement would serve as a framework for legislative proposals that have already been approved separately by the Board of Higher Education and the Board of Education. The relevant legislative proposals have been organized and prioritized to demonstrate where concurrence exists between the partnering sectors. In advance of the Joint Boards meeting on November 20, members of the Executive Committee of the Board of Higher Education are asked to review this combined biennial request (on file in the Board's office) in the context of the Board of Higher Education's general budget priorities, approved in July 1998: 1) the continuing service level budget, 2) the base budget buildup, and 3) legislative decision packages.

(No Executive Committee action required)