Four strategies to effectively structure a building endowment

With rising maintenance costs and tighter operating budgets, facilities leaders have growing reason to seek out new mechanisms to fund regular maintenance and capital renewal needs. One strategy facilities leaders have considered is building endowments.

Building endowments hold significant potential to help solve the deferred maintenance funding challenge in the long run. These endowments enable an initially small investment to grow into a sizeable pool of money from which resources can be pulled to pay for maintenance and renewal. But despite increased interest, the best way to structure successful endowments has not yet been settled.

Multiple approaches to launching building endowments

A few institutions have successfully established building endowments.

Since 1996, Furman University has required donors to contribute 30% beyond the cost of construction for new buildings. These funds are split between two building-specific endowments: 80% to cover annual operations and maintenance (O&M) and 20% to provide for long-term capital renewal. As a result, Furman now has endowments for a quarter of their campus buildings—but that also means facilities must manage 30 separate endowment funds.  

By contrast, the University of Idaho established one centralized building endowment. In 2007, the university began to fundraise 15% beyond the cost of construction for all general education and auxiliary buildings. Currently, the institution sets aside 5% to cover administrative fees while the other 10% goes into a central endowment. (The University of Idaho keeps the general education and auxiliary funds separate.)

Each institution points to the importance of presenting donors with a single number that incorporates both construction and endowment costs, while also communicating the potential for a higher standard of building care.

Four strategies to improve building endowment outputs

In establishing these endowments, facilities leaders at Furman and the University of Idaho wrestled with a major problem: How much money do we actually need to establish an effective endowment? On one hand, too big an initial investment can turn off senior leaders. On the other hand, an initial investment too small will not cover all desired building expenses.

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