Firm seeks to back out of student housing deal [The Register-Guard, Eugene, Ore.]

Oct. 26--A Chicago real estate firm has decided that student apartments in Eugene don't look like such a sweet investment after all.

After agreeing earlier this year to buy four newly built student housing complexes totaling nearly 200 units near the University of Oregon campus, the company is now trying to back out of the deal, according to a lawsuit filed against the firm by the owner of the properties, Eugene developer Dan Neal.

Neal and his business partners are suing Chicago-based Harrison Street Real Estate Capital LLC, alleging the company is improperly trying to back out of contracts to buy four apartment complexes Neal completed over the past couple of years. The four properties together have a market value of about $35 million, according to the Lane County assessor's database.

Neal is among Eugene's most prolific developers of student housing.

Neal is asking a judge in U.S. District Court in Eugene to either force Harrison to buy the properties, or let Neal keep the nearly $2 million in earnest money the Chicago firm put down in May.

"The parties are discussing a potential resolution of the dispute," Neal said via e-mail. He declined to provide more details.

The lawsuit comes as developers from around the country are piling into the Eugene market with plans to build student housing -- even as enrollment at the UO is flattening after increasing rapidly in the last few years.

Harrison Street did not return a phone call seeking comment on the lawsuit, and has yet to file a reply in court.

Selling off housing units

Harrison Street is a major national player in real estate acquisition and sales. The company's specialties include buying and managing collections of income-generating properties on behalf of pension funds, insurance companies, foundations and wealthy families, according to the firm's website.

The firm says it currently manages $5.5 billion worth of properties, including student housing units with more than 28,000 beds, plus thousands of assisted living units, and self-storage and boat storage units.

The company is trying to sell off some its student housing inventory.

Earlier this month, Harrison Street announced it was seeking buyers for 2,670 student housing units in 14 states, including Oregon. Some of the projects are completed and others are under construction, the company's website said.

In the Eugene dispute, Neal alleges that on May 8 he entered into an agreement with Harrison Street to sell the company four complexes: The Sonja, 36 units, at 1836 Alder St.; The Anthony, 15 units, at 960 E. 19th Ave.; Westgate, 35 units, at 740 E. 13th Ave.; and The Pearl, at 1661 Pearl St. The Pearl has 99 units.

The lawsuit doesn't mention the sale price.

Under the agreement, Harrison was supposed to assume Neal's mortgages on the properties, the lawsuit says. The mortgages total about $15 million, deeds recorded with Lane County indicate.

Under the agreement, Harrison was supposed to "use commercially reasonable efforts" to obtain the consent of the existing lenders to transfer their loans to Harrison, the lawsuit says. If Harrison was unable to secure the transfers by Oct. 10, it could cancel the deal and get back its earnest money, according to the lawsuit.

Under the agreement, Harrison was supposed to apply for consent from one of the lenders, the federal Department of Housing and Urban Development, by July 22, the lawsuit says. But Harrison didn't apply to HUD until Aug. 10, and to date has not submitted a complete application, the lawsuit says. Harrison didn't apply to the other lenders -- private companies -- until Aug. 23, the lawsuit says, even though the agreement said Harrison was supposed to apply by Aug. 10, the suit says.

None of the lenders has completed its review of the applications, the lawsuit says.

On Oct. 16, Harrison notified Neal that the sale was off because Harrison had been unable to secure the mortgage transfers by Oct. 10, the lawsuit says.

Harrison said it wants its earnest money back from the escrow agent that is holding it, but Neal has filed an objection with the escrow agent, freezing the money until the parties agree or a judge orders the money released, the lawsuit says.

Harrison isn't entitled to get out of the contract or recover its earnest money, because Harrison's own failure to perform its obligations caused the company to miss the deadline, the lawsuit said.

The lawsuit illustrates the high-stakes games the Eugene marketplace is exposed to in the student housing boom.

A slew of major student housing projects are under way or on the drawing boards in Eugene-Springfield, prompting observations that the market may become flooded -- if it isn't already.

Neal has more projects other than the four in dispute. His latest completed student housing complex is The Prefontaine, a 20-unit building at University Street and East 18th Avenue, finished two months ago. He also has under construction The Patterson, a 102-unit complex at Patterson and East 13th Avenue.

Out-of-state firms diving into the market include Alabama-based Capstone, which is in the midst of building a major student housing complex downtown; Core Campus of Chicago, which has bought land for a 12-story high-rise student tower on East Broadway, but has yet to start construction; a Georgia company that has submitted plans for a student complex in the Laurel Hill Valley; an Indiana company that is looking at building a student complex in Glenwood; and a Texas firm, which has bought a motel off Franklin Boulevard with plans to demolish it and build student housing.

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