Sansom Common will pay for itself, U. claims

The University will borrow approximately 80 percent of the necessary funding for the first phase of the project. Although the University plans to borrow about 80 percent of the $73 million needed to finance the Sansom Common complex, the project is financially sound and should pay for itself, administrators and experts said. University officials provided The Daily Pennsylvanian with a detailed breakdown of how the school is financing the first phase of Sansom Common. During the initial phase, a new bookstore, a hotel and space for six retail shops will be built in what is now the parking lot between 36th and 37th streets and Walnut and Sansom streets. The University will borrow about $59 million to fund the building, officials said. Construction began in June. "As we speak, we're out talking to underwriters," Executive Vice President John Fry said. Administrators are in discussions with six such companies, including New York financial giant Morgan Stanley, Dean Witter, Discover & Co., Fry added. The remaining funding includes $8 million from the transaction that gave control of The Book Store to Barnes & Noble College Bookstores, Inc., $3 million in interest income, and an expected $3 million in donations. Only the preliminary feasability studies were paid for out of the University budget, Fry said. The financing plan is "acceptable if not attractive," according to Temple University Professor Forrest Huffman, an expert in real estate and development law. The percentage of funding from loans is "a little high for commercial borrowing," Huffman said. "But then again, Penn is probably a good credit risk," he added. Fry stressed that officials "haven't even thought of increasing" the complex's projected $73 million cost. "You don't build what you can't afford," he said, adding that construction is "moving very fast? this is what's called a fast-track project." When retail rent, as well as income from the new bookstore and the 250-room Inn at Penn become "stabilized" in 2003, officials project that the building will produce about $7 million in annual income for the University. Approximately $5 million of that will be allocated toward debt and interest repayment -- a figure Huffman said was "acceptable for a real estate investment." In 1996, the University announced it would build a new bookstore as part of the agreement with Barnes & Noble. And last November, University President Judith Rodin announced plans to transform the area around the building into an upscale dining and shopping location. Sansom Common's future phases -- which will include redeveloping the graduate towers area and adding retail space to the Mellon Bank building -- could bring its total price tag to an estimated $120 million, Fry said. But he added that future construction depends on the success of the initial phase. "If this is successful, we begin to look at subsequent phases," he said. Officials have been working closely with the accounting firm Ernst & Young LLP on the specifics of the financing and potential income. Also, administrators have completed numerous studies on Sansom Common to determine if there was enough consumer demand to sustain the complex. "A development like this gets done at the feasibility stage first," Managing Director of Real Estate Tom Lussenhop said. If Sansom Common weren't financially sound, workers wouldn't be constructing it right now, Fry noted, adding, "We could have tanked this 14 or 15 months ago."

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