University of Iowa moves forward with purchase of Old Capitol Town Center

The University of Iowa is moving forward with the full acquisition of the Old Capitol Town Center mall in Iowa City, of which it currently has a share of 55%. At the Iowa Board of Regents meeting Nov. 6, UI senior vice president for finance and operations Rod Lehnertz and senior director of University business and real estate business services David Kieft outlined the university’s history with the mall and its current utilization. Constructed in 1980 as part of Iowa City’s urban renewal project, the 375,000-square-foot building spans nearly two city blocks and sits squarely within the UI campus, making it an ideal location for university needs. “Acquiring the remaining 45 percent of the building is an important strategic purchase. The university has been programming and using the building as a UI student and staff transaction hub,” university documents stated. “ As the university secures ownership of the balance of the building, it would continue to develop spaces to serve student and operational needs that benefit from immediate adjacency to the UI campus core.” The mall was saved from bankruptcy in 2003 from investors and “the university first acquired its existing 55% interest in the building in three phases, between 2006 and 2009,” said Mr. Kieft. During the 2008 flood, the mall became a temporary home for the university’s School of Music and the Iowa Memorial Union’s operations and bookstore. Currently, it houses the UI Office of Student Financial Aid, Campus Safety, and Office of the Registrar. Branded as the “University Capitol Centre,” the university’s departments primarily occupy the building’s second floor. “(The) previous purchase agreements contained an option agreement for the University of Iowa to purchase the remaining 45% interest in the mall by providing notice to the owners in September of 2024 and closing in 2025,” said Mr. Kieft. “During this past summer, the university had numerous discussions with the local mall ownership group that resulted in the agreement before you today for approval.” Under the terms, the university will acquire the property for $20.6 million, with a 10% initial payment due upon approval by the Board of Regents and paid for with university funds. The remaining 90% balance is scheduled for payment over a three-year period and will be funded by a commercial loan, Mr. Kieft said. As part of the plan, the university aims to retain commercial, income-generating leases within the property, which are expected to help pay for the loan and fund maintenance costs. These leases would include private third-party tenants responsible for covering their portion of real estate taxes, Mr. Kieft noted, and UI is evaluating potential strategies for managing these tax obligations, which could involve a payment in lieu of taxes or maintaining a portion of the building on the tax rolls. “It's our intent to keep those taxes flowing to the city on the commercial part of the building…it's certainly not our intent to just take it off the tax rolls and not be paying into the tax base for those commercial leases,” Mr. Kieft said. “The question might be asked of, ‘why do this transaction if we don't immediately need the space?’” he asked. “This is less about either the short or long-term needs for the first floor commercial space in the building, but more about the university acquiring control of the significant footprint in the heart of our campus.” The past 18 years of joint ownership control has resulted in a close relationship with the local ownership group, whose interests align to the benefit of the city, downtown district and university, he added. “As the ownership management team look for other investment opportunities and to move past their ownership of this building, the last thing the university wants to see is the management and remaining ownership pass to outside investors,” he said. “The Iowa City community is all too familiar with local shopping centers signing their way into far off real estate investment trusts, only to see them quickly fall into disrepair and disinvestment in capital improvements that don't keep the retail centers vibrant. It's imperative that this building and this set remain an important, vibrant part of the community and the university.” The university has no immediate plans for the mall, but expect to make upgrades as funds become available in the future. “Our relationship with the city has been very positive and partner-based and we appreciate that every day,” said Mr. Lehnertz. Regent David Barker congratulated the university of the purchase, following the presentation. “I think this is a great, great thing to do, and really consistent with the long term interest of the university,” he said.