Educational institutions can bolster their business strategies by taking greater advantage of their real estate assets, advise two executives from A&G Real Estate Partners in the Turnaround Management Association’s Journal of Corporate Renewal.
“For many schools, taking a hard look at existing real estate holdings and obligations could be the key,” write Jeff Hubbard and Jamie Cote, who are Senior Managing Directors in A&G’s Structured Real Estate Sales division.
Their four-page piece (“Real Estate Could Yield Much-Needed Liquidity for Educational Institutions”) appears in JCR’s October issue. Hubbard and Cote note that liquidity is a critical factor in the ability of educational institutions to weather changes wrought by Covid-19—which came on the heels of existing challenges such as the student loan crisis, declining enrollments and dramatic reductions in state funding.
The commercial real estate veterans point to the potential benefits of cost-cutting and liquidity-raising strategies that are common to that sector. Commercial operators, they note, 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. In addition to building athletic facilities, dormitories, offices, and other buildings, many have also leased or purchased large amounts of real estate,” write Hubbard and Cote. “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.
But while retailers can file for Chapter 11 bankruptcy protection, rationalize their real estate and hit the ground running with new strategies, the situation for colleges and universities can be 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.”
That could include scrutinizing every lease for opportunities to reduce occupancy costs or conducting sale-leaseback transactions. “One New York college, as part of a disposition process for 12 buildings, conducted a sale-leaseback on a $10 million office property on the outskirts of its campus,” the executives write. “Sale-leasebacks allow educational institutions to raise cash even as they retain the use of core assets.”
Properly executed structured sales are another potential route to liquidity; they empower schools to maximize returns on an accelerated timeline and move forward with their reformulated business plans.
“Key elements include a professional marketing campaign to all logical bidders, and upfront due diligence that inspires confidence and spurs a higher level of competition for the asset,” write Hubbard and Cote. “As a result, educational institutions can be sure that fair market value has been achieved through an open, transparent process.”
About A&G Real Estate Partners
A&G is a team of seasoned commercial real estate professionals and subject matter experts that delivers strategies designed to yield the highest possible value for clients’ real estate. Key areas of expertise include occupancy cost reductions, lease terminations, dispositions, structured real estate sales, real estate due diligence, valuations, acquisitions, and facilitation of growth opportunities. Utilizing its marketing knowledge, reputation and advanced technology, A&G has advised the nation’s most prominent retailers and corporations in both healthy and distressed situations. The firm’s team has achieved rent-reduction and occupancy-cost savings approaching $6 billion on behalf of clients in every real estate sector, while selling more than $12 billion of non-core properties and leases. Founded in 2012, A&G is headquartered in Melville, N.Y. and also has an office in Chicago. For more information, please visit: http://www.agrep.com/
At Jaffe Communications,Bill Parness, (732) 673-6852,[email protected], orElisa Krantz, (908)-789-0700,[email protected]
At Jaffe Communications, Bill Parness, (732) 673-6852, [email protected], or Elisa Krantz, (908)-789-0700, [email protected]