Georgia Tech Uses Low-Cost Loans for Transforming Ramblin’ Wreck
Georgia Tech’s bet on the U.S. economy at the depth of the recession allowed it to upgrade sports facilities and save about $72 million in construction and financing costs.
Since 2008, when the U.S. housing market began its collapse, through this year, the Georgia Institute of Technology’s athletic department borrowed almost twice its annual revenue to pay for $88.1 million in arenas, scoreboards and practice areas.
Georgia Tech saw an Atlanta construction industry in freefall and interest rates declining to the lowest levels in a generation. Now, as the three-week, 35-game college football bowl season begins, Tech -- known by its students as the Ramblin’ Wreck -- and schools including the University of Louisville and the University of Michigan are enjoying the fruits of decisions they made when the economy was in distress.
“A lot of contractors and builders were anxious for the work,” Georgia Tech President G.P. “Bud” Peterson said in an interview. “We are at rock bottom on interest rates. It’s a pretty good combination if you can do it.”
The decision is paying off for the 127-year-old university that produces top graduates in engineering and computer science. With an undergraduate enrollment of 13,948 at the beginning of this school year, Georgia Tech’s $1.62 billion endowment ranked 44th among U.S. and Canadian colleges and universities in fiscal 2011, according to the National Association of College and University Business Officers.
The school, which faces the University of Southern California on Dec. 31 in the Sun Bowl, has a storied football history. The trophy given annually to college football’s best player is named after former Tech coach John Heisman. The Ramblin’ Wreck moniker dates to 1927 when students gave a dean’s 1914 Ford that name.
The school estimates it saved at least $30 million in construction costs, based on the price of similar projects done before the recession, athletics chief financial officer Frank Hardymon said in an interview. Near-record-low interest rates also yielded savings of at least $42 million in finance charges, according to data compiled by Bloomberg.
Georgia Tech sold $226 million of bonds to pay for the projects and to refinance old debt. Interest ranged from a variable 1.25 percent on bonds that were refinanced before it went up to fixed rates from 4.14 percent to 5.94 percent.
The annual debt service will amount to about $12 million over the next decade and will increase to as much as $18 million before the bonds are retired, Hardymon said.
The school will pay down its debt from sports revenue and about $63 million in endowment funds that the athletic department projects will grow by at least 6 percent annually during the next 30 years.
Among the projects Georgia Tech built or renovated with the funds between 2008 and early 2012 were the basketball arena ($50 million) and practice facility ($6.4 million); an indoor football practice facility ($9 million); a tennis center ($12 million); football scoreboards ($4.6 million), and football stadium maintenance ($3.2 million).
Hardymon said the depressed market for construction drove builders to trim their bids for the basketball project.
“There were no comparable major construction projects going on in Atlanta at the time and these companies were looking to put their people to work,” he said. “I don’t think we would receive those types of cost breaks today or in the future.”
A handful of sports programs in the top division assumed major facilities debt between 2008 and this year, according to financial reports filed with the National Collegiate Athletic Association.
Michigan, in Ann Arbor, increased its debt by $80.5 million to $215.4 million for a football stadium renovation and practice facilities. Minnesota, in Minneapolis, boosted borrowing by $200.6 million to $236.6 million when it built a new football stadium. Louisville, in Kentucky, expanded its football stadium and built a boat house while raising debt by $88.3 million to $99.8 million.
“You can be conservative or you can take advantage of the market,” said Kevin Miller, Louisville’s executive senior associate athletic director, who oversees the department’s financial operations.
When Athletic Director Dan Radakovich was hired at Georgia Tech in 2006, his approach to building and renovating was to find a donor and proceed as the money became available.
But as the economy sank, he began to change his thinking. One person he consulted was Georgia Tech graduate Stephen Zelnak, chairman of Raleigh, North Carolina-based Martin Marietta Materials Inc. (MLM)
“As the environment developed with construction costs dropping sharply, and interest levels that we may never see again in our lifetimes, he developed an appetite for it,” Zelnak said in a telephone interview. “We said to ourselves, ‘This may be the only time we’ll ever see an opportunity to do what we need to do at such low cost.’”
Radakovich, who resigned from the school to take a similar position at Clemson University that started Dec. 1, still wasn’t ready to leap. Tech had a 10-year plan for replacing its facilities and the athletic director hoped to raise at least a third of each project’s cost up front.
Boosters helped him make the transition. Zelnak committed $4.5 million for the basketball practice facility. Hank McCamish, a Georgia Tech alumnus and founder of the McCamish Group insurance company, committed $15 million to renovate the basketball arena.
Radakovich said Georgia Tech’s renovations were necessary to maintain its place in the Atlantic Coast Conference -- one of six conferences receiving an automatic berth to the Bowl Championship Series that determines the national football title.
“It will help coaches to sell potential student athletes to come to Georgia Tech where they are not only going to get a phenomenal education, but they will have the tools to (go) as far as their athletic talent will take them,” Radakovich said.
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