Bluffs loss estimated to approach $7 million

Bluffs loss estimated to approach $7 million

Chancellor to cap shortfall with discretionary funds

By Alisa Ulferts

Special to The Bruin

Despite aggressive attempts to break even, UCLA expects to lose
nearly $7 million on a housing development it built to attract top
faculty to the campus, university officials acknowledged last
week.

The university began building the exclusive subdivision, called
Westchester Bluffs, several years ago to aid recruiting efforts by
selling homes to UCLA faculty and staff for about 30 percent below
market value.

That plan backfired, however, after plummeting real estate
values and reduced demand forced UCLA to open sales of the
exclusive homes last year to the general public ­ or face a
$50 million loss. Now, a year later, university officials admit
they still owe $6.8 million.

"I don’t think anybody realized the extent to which the nation,
the market and the (university’s revenue) would decline," said Brad
Erickson, associate director of UCLA Real Estate. "Given how fast
and how quickly the market fell ­ a lot of well-known
developers in Southern California went bankrupt ­ I think we
came out relatively OK."

Erickson denied that the university could have predicted the
recession and its effects on university funding and faculty
recruitment before the project began in 1988.

"Nobody saw in 1988 that there was going to be a recession," he
said. "The project was well underway by 1991 when the first hints
that there might be problems came through ­ salary freezes in
1991, freezes in 1992 and salary cuts in 1993."

Those hints led to a more than 50 percent decline in new faculty
at UCLA, a reduction which was not foreseen when the university
borrowed money for the project

Erickson said UCLA based the loan amount on construction costs
at the time, property costs and how quickly the university
estimated it could build and sell the homes ­ a figure based
on historical faculty recruitment and retention.

When that figure changed, the university lost millions.

The $6.8 million figure is the sum of several losses, Erickson
explained, the bulk of which include a $3.5 million loss from the
decline in pricing, $1.8 million for additional market costs and
$1.5 million for the interest paid on the extended loan.

Erickson said while construction costs remained constant
throughout the program, homes in nearby neighborhoods dropped 35
percent in value. Thus the university had to slash $40,000 from its
average $540,000 price in order to remain competitive. Also, he
added, because the university could not sell as quickly as it
thought, it extended its loan and incurred more interest.

Currently, the university owes $11 million, but university
officials said they fully expect that figure to drop to $6.8
million by June 30 if the houses continue selling at the rate of
one per week. Of the 86 units in the subdivision, less than 20
percent have been sold or leased to UCLA faculty and staff, and 11
remain unsold.

The $6.8 million shortfall will be covered by the chancellor’s
non-state unallocated resources, a discretionary account used for
unexpected expenses, said Glyn Davies, acting vice chancellor for
budget. Those resources, totaling approximately $26 million,
include some private donations, as well as the university’s short
term investment pool, which is interest accumulated on the
university’s investments.

Davies denied allegations that student, staff and faculty
parking fee revenues funded the discretionary resources.

"As it stands at the moment, parking fees will not be paying for
the Bluffs," Davies said.