Pat Kilkenny's bet on 'arena district' real estate deal at the University ...

And by
DEBORAH BLOOM
OREGON DAILY EMERALD

In July 2009, a distraught Steve Romania realized his student housing project was dead in the water.

The longtime Eugene auto dealer was days away from breaking ground on the project just east of the University of Oregon campus.

But his bank got cold feet, and his project became one of many stalled by the recession.

Desperate, Romania called Tom Cody, a Portland developer who had wanted to build his own project on the same site, next door to the shiny new Matthew Knight Arena.

Cody had a key asset Romania lacked: Pat Kilkenny.

With the backing of Kilkenny, former UO athletic director, insurance mogul and uber-alum, the Courtside Apartments were a slam dunk. Kilkenny himself provided an $8 million loan, allowing construction to move quickly. In all, the developers invested $29 million in Courtside and a second, larger project they dubbed Skybox. Together, the buildings contain 123 units and some 400 bedrooms.

Both now earn a sizable profit and enjoy the support, both formal and informal, of UO. Kilkenny, by his own reckoning, figures he could earn as much as $10 million on the deal.

University Housing signed an exclusive "affiliation agreement" with Courtside in 2010, sending 70 freshmen to the complex that fall. The apartments also are home to dozens of athletes and international students, thanks to ongoing relationships with UO.

The story of Courtside and Skybox offers a rare glimpse into the business dealings of one of the university's most powerful boosters and the shrewd real estate bet he made even as the economic downturn wreaked havoc on the housing sector. Surging college enrollment made student housing a rare safe haven while the rest of the market was embroiled by chaos.

The lucrative investment is a touchy subject for Kilkenny.

"I have a lot of sensitivity to these things that could smack of my fingerprints being on them," he said in a lengthy recent interview. His tenure as athletic director ended months before he got involved with the apartments, he says, but he was employed by UO on an "on-call" basis until last spring. He was strictly a "passive investor" and had nothing to do with the UO housing agreement, he said.

After working with no salary as athletic director and giving UO what he estimates to be $15 million to $20 million in gifts over the years, he said he resents the implication that he would use his connections to boost his net worth.

"Why would I spend three years of my life (as athletic director) trying to make things better, only to act as a profiteer for nickels and dimes on a commercial real estate project?" Kilkenny asked. "I've tried to take the high road every step of the way."

PEARL-IZING EUGENE

In general, 2009 was miserable for the real estate industry. The mid-decade boom years had given way to a grim reality of foreclosures, bankruptcy and bank failures. Paradoxically, the recession actually strengthened a corner of the real estate market: student housing. As more people chose college over the anemic job market and students lingered longer, colleges struggled to handle the load.

At the same time, universities, many suffering from deep cuts in state support, opted to boost their own revenues by pushing enrollment.

The University of Oregon was no different. Between 2007 and 2011, enrollment jumped by about 1,000 a year to 24,447. Yet, UO didn't build a single dorm in those years. It did squeeze a third bed into some existing rooms, adding space for 129 students.

Oregon also chose another path to increase revenue -- more out-of-state and international students, who can afford to pay three times as much tuition as in-staters. The more than 4,500 Californians at the UO this year -- far and away the largest number of out-of-staters -- made up 18.5 percent of total enrollment, more than double the percentage seven years ago.

Eugene housing developers say that along with these wealthier students has come demand for nicer, larger living spaces.

"Helicopter parents feel that Junior should not have to suffer the privations that they did living in the dorms," said Gordon Anslow, of Anslow & DeGeneault Inc., a prominent student housing developer. "And they're willing to fork the money over for it."

Against this backdrop, Cody proposed Courtside and Skybox. Unlike the motley collection of small garden apartments and duplexes that dominate UO's west side, Cody envisioned larger, urban, energy-efficient and more expensive units -- a bit of Portland's Pearl District right off Eugene's underdeveloped Franklin Boulevard.

"We wanted to create a new paradigm in student housing," said Cody, a principal at Portland's Gerding Edlen Development before going out on his own.

He hired Gene Sandoval of Portland design powerhouse Zimmer Gunsul Frasca Architects, who brought the same kind of modernistic, angular look that he designed into the Jaqua Academic Center. Sandoval also designed the expanded Casanova Center athletes' training facility.

Sandoval played another small but telling role in the history of Courtside and Skybox: He introduced Cody to Kilkenny.

DEAL-MAKER

A native of Heppner, the 59-year-old Kilkenny attended UO as a journalism student. He left before graduating and entered the insurance business, where he built a fortune.

In 2007, he was named athletic director for his beloved alma mater, launching a whirlwind of development that changed the face of UO sports. His first order of business: a state-of-the-art basketball arena to replace the decrepit McArthur Court. He got it done, in large part by persuading close friend Phil Knight to donate $100 million.

He also reinstated baseball, started work on a baseball stadium and hired Chip Kelly as head football coach, a crucial step in building UO into a national football power.

By 2009, the Matthew Knight Arena was taking shape. Developers hungrily eyed adjacent properties.

Romania was one of them. But when his bank scaled back support, he contacted Cody, who had been scouting the same neighborhood.

"He said, 'I can put a deal together,'" Romania recalled. "We contributed the land, Pat did the money, but this was all Tom's deal."

Said Cody: "It was a magical combination to get something out of the ground -- a good experienced developer, strong credit quality and very conservative, lucid underwriting."

Kilkenny said he informed then-UO President Richard Lariviere of his involvement in the project in the summer of 2010.

Time was of the essence.

They needed to have the building ready for the 2010 academic year. But they didn't break ground until September 2009.

In part to save time, Kilkenny himself provided the crucial $8 million construction loan. The loan also made the deal more profitable for Kilkenny. "I could make a margin on it," he explained.

Kilkenny also provided an introduction to California Bank & Trust of San Diego, which offered permanent financing. As is typical in a development like this, Kilkenny's construction loan was paid off.

They completed Courtside in a lightning-quick nine months. But they missed the prime March-April leasing period and still had vacancies by mid-summer.

But then the university got on board.

NO ROOM AT THE DORM

In summer 2010, UO faced a serious housing shortage.

Mike Eyster, then director of University Housing, had watched Courtside take shape just blocks from existing dorms at the east edge of campus. He said he approached Cody about the potential of putting incoming freshmen into the building.

On July 22, the two sides signed an affiliation agreement in which UO would refer students to Courtside and feature the complex on its website and in other promotional material.

It was the only apartment complex in the city to get such coveted status.

Eyster said the university chose Courtside because it was close to campus and because Cody agreed to certain conditions, including having building managers available on-site.

Eyster said he dealt only with Cody. Kilkenny never got involved, Eyster said, adding that he didn't know Kilkenny was an investor.

The referral agreement has since lapsed. But Courtside and Skybox have an ongoing relationship with the American English Institute, part of UO's linguistics department, and houses 30 international students, Cody said.

The apartments also house 24 UO varsity athletes. Though there appears to be no formal agreement with the athletic department, it's routine for assistant athletic director James Harris to notify Courtside and Skybox managers how many athletes need housing.

Craig Pintens, assistant sports information director, said Courtside and Skybox are popular with athletes in part because of their proximity to the athletes-only Jaqua Academic Center.

GAMBLE PAYS OFF

Today, a flurry of private student housing development is reshaping parts of Eugene. The largest is Capstone Collegiate Communities' planned $85 million, 300-apartment complex at 13th Avenue and Willamette Street.

Cody and Kilkenny's 2009 gamble now seems ahead of its time. Both Courtside and the larger, adjacent Skybox complex are 100 percent occupied, marketing themselves as "anchors of the up-and-coming Arena District." Rents range from $625 to $1,250 per bedroom per month, making them some of the more expensive student housing units in the city.

As 50 percent owner, Kilkenny figures that he could eventually earn $7 million to $10 million.

There's nothing wrong or illegal about a public employee making a profitable investment, even a hugely profitable one. Ron Bersin, executive director of the Oregon Ethics Commission, said state law allows public employees to participate in private ventures.

What would constitute a violation is if Kilkenny made decisions in his public role from which he benefited. Kilkenny was no longer athletic director when the buildings were erected. But he remained employed until March 2011 as special assistant to the athletic director.

Oregon ethics laws also prohibit public officials from using confidential information gained in the course of their position to benefit themselves. Kilkenny obviously had inside information on construction and financing of the Matthew Knight Arena.

But, as Bersin pointed out, by the time Kilkenny's group purchased the land for the apartments, location of the arena was common knowledge. Construction of the arena began in February 2009, six months before Cody teamed with Kilkenny.

"The bigger issue," in Bersin's opinion, "is the agreement with the university in putting students into the building and whether he (Kilkenny) had any role in that"

Kilkenny insists he didn't, and he's backed up by UO housing officials.

Kilkenny said he's been approached many times to facilitate certain commercial ventures that involve UO and its athletic department. "I don't touch it. I won't make introductions. I won't go to meetings. It's not something I'm going to do," he said. "Everything I've done is to protect the institution's reputation."

-- Jeff Manning and Deborah Bloom

Source: http://www.oregonlive.com/business/index.ssf/2012/02/pat_kilkennys_bet_on_arena_dis_1.html

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