SU president outlines economics of new building

Posted: December 1, 2012

The Winchester Star

Shenandoah University President Tracy Fitzsimmons (center) participates in a classroom exercise. She says low interest rates and expiring leases make the time ripe for SU to borrow $16 million for a new building. (Photo by Scott Mason/The Winchester Star)

WINCHESTER — Low interest rates and soon-to-be-expiring leases have convinced Shenandoah University officials that the time is now to build a new Health Sciences building on the campus.

President Tracy Fitzsimmons said Thursday night that the combined principal and interest payments on up to $16 million in bonds the university would use to fund the project would be the same as or less than the amount it is paying to lease Winchester Medical Center space for those programs.

“Because interest rates are so low now and because some of our leases are up for renewal,” she said, “we think it’s time to transition some of those lease payments to debt payments so that 20 to 30 years from now we no longer have lease payments and we outright own the building.

“The Board of Trustees and I have a strong commitment to not exceed the current lease payments with the new debt payments. We think it is financially prudent to not make any further demands on the annual operating budget in the construction of the building.”

Fitzsimmons declined to reveal the amount Shenandoah pays for the leased space it would vacate or the amount of the projected bond payments for the new structure.

SU’s desired result, she said, is for most or all of its undergraduate Health Sciences programs to be held in the new building and most or all graduate programs to be housed in space leased from Valley Health.

The new Health Sciences building is planned for campus space adjacent to Mary M. Henkel Hall and the Alson H. Smith Jr. Library. Bond documents indicate that it would have 50,000 to 55,000 square feet of space.

Discussions about the potential move have been under way for months, and Fitzsimmons said Valley Health officials have been supportive.

“Shenandoah University could never have started its Health Sciences program if not for the support and expertise given by Valley Health Systems,” she said. “They’ve been a very good partner and were very flexible in working with us on the timing of this new facility.

“We’re very grateful for that and very pleased that this new building will help with the growth of these programs and help us serve the community better in meeting their health services needs.”

Todd Way, Valley Health’s senior vice president of regional operations, said SU’s move to the new building has been discussed for months and is expected to occur at the end of 2014.

After various programs are shuffled, the result would be a reduction in the amount of space SU leases on WMC’s main campus and the vacation of all of the space it rents in the former Winchester Memorial Hospital at Stewart and Cork streets.

Valley Health backs the move, he said, and the loss of some lease revenue would not affect WMC’s operations.

“We’re very supportive of Shenandoah University’s strategic options,” Way said. “We want to work with them to help them meet their needs.”

WMC can use the space the university would vacate on the main campus, he said, noting that hospital physicians or new tenants might fill those offices. Officials have begun considering future uses for the Cork Street property.

University leaders are working to secure tax-exempt Educational Facilities Revenue Bonds for the project with the help of the Mount Jackson Economic Development Authority (EDA).

Winchester and Frederick County have reached their bonding limits for the year, but Mount Jackson’s EDA has capacity remaining and is willing to facilitate transactions during the next two calendar years.

Bond documents also list a dormitory to be built in the city and an athletic fieldhouse to be built on part of the campus in Frederick County as alternate projects for which the funds could be used if a decision is made not to use the bond proceeds for the Health Sciences building.

Fitzsimmons said the chances are remote that either of those projects would be built now. But the City Council and the Frederick County Board of Supervisors still must pass resolutions concurring with SU’s efforts to seek the bonds through Mount Jackson’s EDA for potential projects in their jurisdictions; both panels are expected to consider resolutions this month.

Terms for the bonds, including their interest rate and length, have not been determined, she said.

The university’s Board of Trustees voted unanimously Wednesday to secure the financing for the project, Fitzsimmons said, and an architect has made “significant progress” in designing the building. However, once the funding is secured, the trustees must approve construction of the building.

The university would not be required to issue the bonds if they are approved or to construct the building, she said. If that were to happen, SU would incur minimal expenses.

“The costs that would be incurred would be nominal,” Fitzsimmons said, “and we feel as though the potential value of the project far outweighs the potential costs incurred if we were to choose not to go forward.”

Through a similar transaction with the Industrial Development Authority of Clarke County late last year, Shenandoah refinanced all of its nearly $47.5 million in debt. University officials said the move was made to clear the way for potential construction projects, including a Health Sciences building.

Fitzsimmons said the deal allowed the university to take advantage of lower interest rates and convert some debt from variable to fixed rates. She declined to reveal the university’s current debt total, the amount it saved in the 2011 refinancing or the interest rate it received in that transaction.

“That is private information,” she said, “that I am not at liberty to share.”

She also declined to say whether SU has debt-limit policies in place to guide its decisions.

Fitzsimmons characterized herself and the institution as “very financially conservative.”

She said discussions among trustees Wednesday about the proposed bonding initiative were “healthy and very responsible,” and she does not think any trustee has qualms about the approved plans.

“This is a group of trustees that speaks and votes its mind and is very conservative financially,” Fitzsimmons said, “and if they had any concerns, I don’t think the vote would have been unanimous.”

— Contact Vic Bradshaw atvbradshaw@winchesterstar.com