The Ohio University Foundation will face mounting losses if it fails to find investors for University Courtyard Apartments in the coming months.

Bill Decatur, senior vice president for Finance and Administration, told the Board of Trustees Resources Committee yesterday that the foundation, which manages OU’s endowment, will face major annual losses if it does not find new buyers for $29.5 million in bonds before the end of the year. A subsidiary of the foundation owns the apartment complex.

The bonds were first issued by the subsidiary, Housing for Ohio, in 1998 to pay for the construction of University Courtyard on Richland Avenue.

Housing for Ohio was created by the foundation to build the apartments and to move financial liabilities associated with the project off the foundation’s balance sheet, protecting its credit.

In mid September, two major investors cashed in their bond holdings, which totaled $29.5 million.

Since this sell-off, Housing for Ohio has entered a 90-day “remarketing period,” where the broker responsible for selling the bonds has searched for new investors to buy the bonds without success.

In addition, as part of the remarketing period, the investment bank Wachovia, which backs the bonds, stepped in to absorb Housing for Ohio’s debt to investors. This debt was then transferred into a temporary 90-day loan that will allow Housing for Ohio to find new investors. Wachovia provided the loan at 1 percent above the prime rate, which is the lowest rate offered to clients by banks nationwide.

The remarketing period ends Dec. 24, and if Housing for Ohio fails to find buyers for the bonds before then, the temporary loan will be converted to a new loan at a higher interest rate. With this new loan in place, the annual interest expenses will jump from $1 million in 2008 to about $1.4 million and $1.7 million in 2009 and 2010 respectively.

Courtyard has a 93.2 percent occupancy, which created a net income of nearly $500,000 last year. Assuming a similar occupancy in coming years, the new loan will turn any income into a loss within a maximum of four years.

That occupancy is unlikely to be maintained, Decatur said. Competing apartment complexes will be opening in the coming years. Among them, Summit at Coates Run is slated to open next year and will be located across the street from Courtyard, behind the Ohio University Inn.

Decatur said the marketability of a bond is tied to the credit of the bank that backs it, in this case Wachovia. Previously, this meant that the bonds were desirable, but since Wachovia reported a $23.9 billion loss for the second quarter of the year, they have proved far less attractive to investors.

Decatur said that the creation of Housing for Ohio in the late 1990s was one of the major reasons for the bond troubles. With the advent of revised guidelines for rating the safety of bonds, the isolation of Housing for Ohio from the OU Foundation’s balance sheets has destroyed its credit rating by removing the assets of the university from consideration, Decatur said.

To buy more time, Decatur said the foundation will buy the bonds in increments itself at current interest rates with the idea of cashing them in with Wachovia and getting their money back. Once all the bonds have been bought and cashed in by the foundation, the 90-day remarket period will reset. This will not solve the problem, Decatur said, but it will provide more time for the bond market to improve or the broker to find new investors.

The delay could also allow for the finalization of a possible merger between Wachovia and Wells Fargo, the best-rated bond issuer in the U.S., which would help attract new investors.