Last October, “under clear skies with the sun shining,” students and administrators from Keck Graduate Institute joined Claremont city officials to cut the ribbon on its brand new 419-bed graduate housing complex, the Oasis KGI Commons, a KGI press release said.
“I like to think of the Oasis complex as a clear indication that we are leaving the start-up phase in the life of KGI,” the school’s board chair Jim Widergren said at the ceremony, according to the release.
But Oasis’s “start-up phase” has not been nearly as sunny as its cheerful opening ceremony implied, and its tenuous financial situation has slid further downhill in recent months.
“They ignored so many emails, neglected the students, and were unprofessional to the point that even our own school staff were left in the dark. This entire ordeal is a complete mess.”
Adding to delayed construction, low occupancy and revenue shortfalls, Oasis stumbled further in December when the bonds issued to fund the complex were downgraded to junk status.
The $53 million project is generating “insufficient revenue to cover budgeted operating expenses and debt service obligations,” according to a report by Moody’s Investors Service, a credit risk management service that provides risk analysis.
The complex, developed in conjunction with The Claremont Colleges and Claremont Graduate University, was intended to house KGI and Claremont Graduate University students as well as 7C faculty and staff, according to KGI’s release.
It consists of two four-story buildings, containing housing and classroom facilities, located on Bucknell Avenue behind the Packing House in Claremont Village.
According to the risk management service, only 60 percent of the housing is occupied.
On Dec. 5, Moody’s reclassified the bonds issued for the project to “Caa2,” which it describes as “of poor standing and [subject] to very high credit risk.”
Eric Hughson, a professor of economics and finance at Claremont McKenna College, said this is a significant problem.
“The idea was that the rent was supposed to pay off the bond holders, and there isn’t enough rent with only 60 percent occupancy,” Hughson said.
The occupancy level also seems to have been a significant factor in the Moody’s downgrade.
“Once you get below the 80s, a project is already a little suspect,” Florence Zeman, a Moody’s associate managing director, said, according to an article in The Bond Buyer about the KGI complex.
KGI partnered with the National Campus and Community Development Corporation to construct Oasis, KGI spokesperson Ivan Alber said via email. NCCD is a nonprofit that specializes in developing and financing student housing projects throughout the country, according to its website.
KGI provided NCCD with a lease to develop and finance Oasis, Alber said, meaning NCCD is now on the hook for the debt. Alber added that Oasis, which is KGI’s first-ever housing endeavor, remains a “top priority” for the school, and he remains optimistic.
“The occupancy rate has improved since fall 2019 and the property management firm is increasing their effort to improve the occupancy rate for fall 2020,” Alber said.
Oasis was originally scheduled to open in 2018, according to The Bond Buyer, but could not until July 2019.
The delay left some KGI students abruptly looking for alternative housing arrangements in fall 2018. A petition posted by students alleged that those who signed license agreements with Oasis were forced to choose between staying at hotels or alternative accommodations half an hour away from campus, or — for a time — paying a penalty to break their leases.
“They ignored so many emails, neglected the students, and were unprofessional to the point that even our own school staff were left in the dark,” one signer, Malia Varron, wrote in response. “This entire ordeal is a complete mess.”
Alexis Ireland, Oasis’s director of housing operations, said via email that students received a month’s rent, alternative housing and transportation to campus from their alternative living spaces.
“Once the delay extended beyond September 2018, we made the offer for any resident to terminate the lease without penalty,” Ireland said.
A 2015 study found Oasis was necessary because of KGI’s “significant growth.”
The study forecasted a 300-student increase in enrollment over the next four years. KGI enrolled 617 students in fall 2018, according to the U.S. Department of Education, 336 more than in 2014.
But CGU’s enrollment has also fallen by 272 students in the same period, according to the study and the DoE.
Eighty-eight percent of student renters that the study surveyed said the cost of rent and utilities would be a “top priority” when searching for housing.
But the study also showed that Oasis’ rents would be significantly steeper than those of CGU’s existing housing complex – 15 percent higher for a one bedroom apartment and 46 percent higher for a studio.
Moody’s said it expected NCCD to tap into a reserve fund in order to pay bondholders. A continuing reliance on that reserve to pay debts could “impair the project’s ability to weather financial distress and operating challenges,” it said.
KGI, CGU and The Claremont Colleges have not provided any assurances that they will avoid a default of the project’s bonds, according to the Moody’s report.
Jasper Davidoff contributed reporting.