Schools Have Real Estate to Monetize. Now’s the Time to Do So
Earlier this year, the Moody Bible Institute made headlines in Chicago with a sale of surplus land north of its main campus to JDL Development. Although the acreage went on the market months before anyone had ever heard of COVID-19, it’s a strategy that educational institutions would do well to emulate in the current environment, judging by an article from two executives at A&G Real Estate Partners.
“For many schools, taking a hard look at existing real estate holdings and obligations could be the key,” write A&G’s Jeff Hubbard and Jamie Cote in the Turnaround Management Association’s Journal of Corporate Renewal.
Hubbard and Cote note that liquidity is a critical factor in the ability of educational institutions to weather changes wrought by COVID-19. These changes came on the heels of existing challenges such as the student loan crisis, declining enrollments and dramatic reductions in state funding.
Senior managing directors in A&G’s structured real estate division, Hubbard and Cote advise taking a page from the playbook of commercial real estate operators. These operators routinely sell off non-core owned real estate, aggressively renegotiate occupancy costs, terminate leases for underperforming locations and conduct sale-leaseback transactions.
“Over the past 20 years, many educational institutions have been part of a construction boom of historic proportions,” write Hubbard and Cote. “In addition to building athletic facilities, dormitories, offices, and other buildings, many have also leased or purchased large amounts of real estate. This has occurred not just in and around their primary campuses but also as part of expanding satellite operations.”
Properties that have been bequeathed to educational institutions—such as ancillary athletic fields or well-appointed houses located just off campus—typically are part of such portfolios as well, the authors add.
Yet, although retailers can file for Chapter 11 bankruptcy protection, rationalize their real estate and come back with new strategies, the situation for colleges and universities is often quite different. In 1992, Congress amended the Higher Education Act so that students would be ineligible for federal grants and loans if their schools declared bankruptcy—an “absolute and permanent” prohibition under the law.
“Precisely because of the extreme consequences of filing for bankruptcy protection,” write Hubbard and Cote, “institutions of higher education need to rely on strategies that can yield results for them outside of court.”
Pictured: the College of New Rochelle in New Rochelle, NY, where the campus was sold for redevelopment.
For comments, questions or concerns, please contact Paul Bubny
- ◦Economy
- ◦Sale/Acquisition
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