Trustees are scrutinizing real estate holdings in education as never before, noted two executives from A&G Real Estate Partners in a webinar conducted by The Association of Governing Boards of Universities and Colleges (AGB).
“The pandemic is fast-forwarding business models that were already pivoting to take into account declining enrollments, reductions in state funding, higher debt loads and more distance learning,” said Andy Graiser, Co-President of A&G. “At the board level, there’s a growing focus on ramping up the efficiency of real estate.”
The Oct. 22 webinar, Bolstering Liquidity by Optimizing Real Estate, included Jeff Hubbard, a Senior Managing Director in A&G’s Structured Real Estate Sales division, as well as panelists Dr. William W. Latimer, vice president of the Bronx Campus of Mercy College, and Andrew Laws, managing director of the education practice at Huron Consulting Group.
Graisernoted that A&G’s Education Services group has helped the likes of Dowling College, The College of New Rochelle (CNR) (pictured top), Career Education Corp., and Kaplan University reduce their occupancy costs through strategies such as restructuring or terminating leases, and boost liquidity through structured sales and sale-leaseback transactions.
Latimer shared his experience in working with A&G on such a strategy at CNR, where he was brought in as president in 2018 in the wake of a financial crisis dating to 2016 that caused the college’s debt service to swell and required the time needed to broker a partnership.
With A&G’s help alongside a deliberate plan that sustained the college’s solvency during negotiations, CNR avoided a precipitous shutdown while the school negotiated an interim campus leasing agreement with Mercy College and subsequent structured sale of the main campus.
This followed earlier real estate moves designed to “build runway” that included a structured sale of non-core assets located near the school and a sale-leaseback of its Bronx satellite campus.
“In the wake of the Covid-19 Pandemic,” Latimer said, “colleges and universities need to formulate a top-to-bottom adaptive strategy that optimizes all facets of operations. That includes looking closely at real estate—how it is collateralized, what the interest rate was when originally financed, and how much time is left to go.”
Laws also pointed to a shift in thinking. “What we continue to see is more of this increased appetite for transformational changes,” he said. “How do we really bend the cost curve of an institution?”
From a real estate standpoint, Graiser said, it all starts with a comprehensive review of owned and leased properties.
“You need to drill into the nuances of your leases, both financial and non-financial clauses,” he explained. “You want to understand your leverage and scrutinize all of the pros and cons—including the community impact—of any real estate decisions. The portfolio review rolls up into a realistic ‘ask’ of your landlords with respect to rent-reduction; the key is to be transparent.”
In the case of owned properties, Hubbard noted, institutions can bolster liquidity in two ways: structured sales of non-core properties, and sale-leasebacks of core properties for which the school wants to retain control.
Hubbard explained how this approach allows colleges and universities to rapidly execute real estate sales in anywhere from 60 to 120 days, with none of the contingencies that often kill real estate deals late in the game.
“CNR, for one, looked at their portfolio, identified places where they could generate immediate cash, and, through a structured sale process, got it all done in the timeframe they needed,” Hubbard said.
“We ran a competitive process to sell the main campus for $32 million, with three bidders that all came in with bids of between $31 million and $32 million. It was a clear demonstration of the market value of that property.”
Latimer, the former CNR president, underscored the importance of defining timely strategies alongside the need to have a plan that maximizes investment resulting from better leveraging of real estate.
The webinar recording is available here: https://bit.ly/3kA6tzY