Investors move to seize student housing near Temple from community developer Beech Co.

Bond investors have moved to take over financially troubled Beech International Village, a four-story building with room for 200 students, plus ground-floor stores, in the 1500 block of Cecil B. Moore Ave. near Temple University.

In a civil lawsuit filed in Philadelphia Common Pleas Court last month, the bondholders, led by UMB, a Missouri-based bank, allege that nonprofit Beech Interplex Inc., which built Beech International in 2010 with $17 million it raised from income-tax-exempt municipal-bond sales, owes the city $1.1 million in unpaid property taxes and has failed to give investors required financial reports and warnings.

With its stores and many rooms vacant, rents in the building are no longer bringing in enough money to cover the building’s costs, according to the civil lawsuit UMB filed against Beech in federal court in Philadelphia last month.

UMB accuses Beech of fraud, breach of contract, and accounting violations. The bank seeks to foreclose the property, turn it over to a receiver, and offer it for sale so investors can get their money back before the city seizes it for nonpayment of taxes.

“We are reviewing this litigation with our attorneys” and will file a response in court, according to a statement by Beech chief executive and president Ken Scott.

It is an unusual default for a bond issue backed by the Philadelphia Authority for Industrial Development, a public agency founded in 1967, which helps about one city nonprofit a month issue bonds using its income tax exemption to cut costs on projects that provide public benefits, such as housing.

It’s up to Beech, not the city, to pay taxes or other money due, said Kevin Lessard, a spokesperson for the Philadelphia Industrial Development Corp., the city-Chamber of Commerce joint venture that oversees the authority, approves and helps set up financing for private developers, and manages a string of subsidy programs. He said he hopes Beech and its bondholders work out their conflicts.

Temple referred students to Beech International in its early years but has stopped doing so, said Robert L. Archie, a lawyer for Beech.

“Just in my opinion, Temple defaulted on their obligation. They didn’t provide the students,” Archie said, noting that the several Temple appointees have held seats on the Beech International board.

Archie called the bondholders’ move to take control “precipitous. They are overreaching, in my opinion.” He added, “We can’t go out and manufacture students.”

Fewer than half the project’s 100 double rooms have been occupied recently, Archie said. A Beech employee who was not authorized to speak for the record estimated occupancy at around 60%. The ground-floor stores are vacant.

Beech built a student complex at Temple in 1990, also with tax-exempt bonds that were eventually paid off, Archie said in an interview. That earlier project also enjoyed a city real estate tax exemption, which Beech International was unable to secure, leading to litigation that is ongoing in a Pennsylvania appeals court, he said.

Beech blames the project’s troubles on a drop in demand for student housing. According to data posted by Temple, the university enrolls around 30,000 students, down from 39,000 five years ago.

The university enrolled 4,900 first-year students this fall, up 30% from a year earlier. First-year Temple students are encouraged to live on or close to campus. Most students don’t; the Temple Office of Sustainability notes that the overall proportion of Temple students who commute from home, instead of living at Beech or any of eight other residential buildings on or near the campus, rose to 86% in 2022, from 82% in 2019.

UMB, which says it is backed by most of the bondholders, also says in the suit that it wants to replace Beech as administrator for the property and appoint an outside receiver that could improve property revenues or sell the building to raise money to repay $15 million still owed the bondholders.

According to the suit, Beech failed to pay real estate taxes on the property in 2018. The city filed a lien against the property the following year. Beech also failed to pay taxes in 2022 and 2023, accumulating a bill of $1.08 million as of Oct. 4, and it failed to notify bondholders of its inability to pay.

Beech, along with its corporate parent Beech Co. and several affiliates, grew out of a 1990 initiative by the nonprofit William Penn Foundation to support revitalization of neighborhoods near Temple, including the Cecil B. Moore Avenue business district, parts of which burned during civil unrest in the mid-1960s and were not redeveloped until recent years.

William Penn provided a grant of $25 million toward the effort. Beech was founded by Floyd Alston, a former city Board of Education chair turned nonprofit developer, who died in 2012.

Temple “values its relationship with Beech,” but the university “has met and continues to meet all obligations” and ”has no responsibility or authority for Beech’s performance” under its lender agreements, said Temple spokesman Steve Orbanek.

Though Beech has said it constructed student housing at Temple’s request, “Beech International Village was not constructed at the request of the university,” according to the university spokesman.

As vacancies rose during the pandemic of 2020-22, lawyer Archie said, Beech tried to persuade the nonprofit Pennsylvania Housing Finance Authority to certify the property for senior housing but has so far failed to win approval.

He said Beech may try to get the Philadelphia Housing Authority take over the site.