Urban institutions are investing in local real estate to support university development initiatives while wielding influence in their communities, Hilary Daninhirsch reports for University Business.
Real estate provides institutions the opportunity to boost both their economic and social standing. By investing in real estate, colleges can revamp their surroundings to develop facilities that meet student and faculty needs, such as retail, office, and hotel space.
Considerations for opening a retail center
"A university is an institution that will be there 100 years from now," says Herman Bulls, international director and vice chair for the Americas at consultancy and professional services firm JLL. "They have to take a very long-term perspective as to how they would control and influence their surrounding areas."
Purchasing real estate can serve as a way for colleges to revitalize neighborhoods in need while also furthering their own priorities.
Over the past 20 years, the University of Pennsylvania (UPenn) purchased land and buildings surrounding campus. With this strategy, UPenn has converted:
- A former aerospace manufacturing plant into student apartments;
- A plumbing warehouse into a radio station and a performing arts venue;
- The site of a former laboratory into warehouse and new laboratory space; and
- The site of a former U.S. Post Office into green space, housing, and offices.
"Our main concern is maintaining long-term ground control so that we ultimately have an influence over the type of amenities in terms of quality of design and in terms of tenant mix," says Craig Caranoli, UPenn's executive vice president. "If you're urban, you need to be active in real estate largely to facilitate future growth for future administrations."
George Washington University's (GWU) Square 54 comprises nearly 1 million square feet of mixed-use retail, residential, and office development. With the income from Square 54, GWU paid for 90% of a 500,000-square-foot research facility on campus without using operational funds.
But many universities investing in real estate aren't seeking revenue. Rather, they view real estate ventures as part of a long-term strategy. The Georgia Institute of Technology, for example, considers its real estate ventures to be "revenue neutral."
Organization and activities of real estate offices at large research universities
"None of these initiatives targets generating revenue, but 'targets' our mission of academic research and economic development," says Steven Swant, executive vice president for administration and finance. "They need to be economically feasible and viable, but they were never designed to spin off revenue, though maybe they will at some point in the future."
Investing in real estate does not come without risks for colleges, which is why a number of large, urban institutions are entering public-private partnerships.
The University of West Florida has a ground lease for Argonaut Village, a new restaurant development spanning more than 13,000 square feet. And GWU entered into a ground lease for Square 54 with private sector partner Boston Development that allows the land to revert back to the university in 60 years. Such an investment "takes all the balance sheet risk off the university," says Lou Katz, GWU's executive vice president and treasurer (Daninhirsch, University Business, June 2016).
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