February 27, 2003

Colleges face big real estate challenges

Schools looking to expand off campus find a different reality

By JIM NORMAN
Sage Real Estate Strategies

Norman
Norman

Anyone who follows the news knows that colleges and universities all over the country are facing some daunting prospects. A weak economy, declining public tax support, burgeoning enrollments and plummeting private donations have conspired to make the work of academic leaders harder than ever before.

Undoubtedly, somewhere a harried provost is chanting the Latin version of “Do more with less!”

Many long-established schools, public and private alike, have one other important thing in common: they tend to own large tracts of real estate and operate a variety of facilities — often near urban cores or in booming suburbs. Many times, institutions of higher education are among the largest landowners in a metropolitan area. Perhaps because of their sheer size, colleges aren’t always able to make those assets line up well with organizational objectives.

“From a real estate perspective, one other big challenge colleges face is planning with a 50- to 100-year time horizon,” says Bob McIntosh, vice president for university advancement at Seattle Pacific University. “Not too many corporations or real estate investors need to think as far out as we do.”

Given the current fiscal crunch and an ongoing need to interact effectively with surrounding neighborhoods, many schools are taking a much more businesslike and balanced approach to real estate and capital asset management. A number of big West Coast colleges already have established strong real estate functions. Some of the better known among them are the University of Washington, Stanford, Pepperdine near Los Angeles, and the University of British Columbia.

Not all academies, however, have much real estate bench strength or diversity of staff background. Increasingly, they’re looking to the private sector for innovation and direction. To help with strategic planning, many schools have set up high-level real estate advisory panels made up of local experts. Others have expanded their staff with seasoned commercial real estate professionals who have experience running large corporate portfolios.

The schools are all looking for sophisticated ways to control costs, improve service levels, manage complex “town-gown” relations, and boost overall productivity and accountability. All that, while not short-changing the pressing needs of academic departments clamoring for attention.

One of the key things that the community often doesn’t realize about major research institutions is how much space they require for non-academic uses. Not all campus buildings are quaint ivy-covered classrooms and quiet libraries. Schools need room for advanced research labs, student and faculty housing, computer centers and other back-office functions, and a myriad of other purposes. In some senses, colleges are the ultimate in modern mixed-used development.

But, with reduced budgets and frequently restrictive zoning, some colleges (like their students!) are being forced to live off-campus. Some are establishing nearby satellite campuses or moving to other parts of town where they have room to expand. Other schools, especially those doing a lot of basic science preparatory to potentially valuable “technology transfer” in everything from information systems to biotechnology to robotics, are collaborating with corporate and nonprofit entities on independent research centers.

Once they leave campus, though, schools can be in for a big shock. They are no longer their own landlords and are subject to the whims and pressures of the market. That fact alone is one of the best arguments for having people with private-sector perspective on staff.

My best advice to university regents and academic executives is a simple but dead-on corporate cliché: Think outside the box. Constantly evaluate your real estate portfolio from multiple, interrelated standpoints including current and future use, development and financing.

Most important, make sure your R/E strategies are in perfect sync with the school’s overall mission. And challenge your real estate team to regularly benchmark its performance against comparable operations, and not only in academia.

The consequences of ignoring real estate and facilities issues are dire, with one of the most obvious being simple deferred maintenance. Granted, everyone loves an idyllic campus setting; but if buildings are crumbling and not suited to current education technologies, the school will slip quickly into second-class status.

Sadly, leaders at many large colleges already believe they can’t afford to maintain their existing infrastructure and are presiding over rapidly declining assets. To address that and provide for badly needed expansion, former Washington Govs. Dan Evans and Booth Gardner recently proposed a $4.7 billion funding proposal that involves raising the state’s debt limit.

Predictions are the nation’s largest ever freshman college class will take its seat in 2008. Now is the time for academic administrators to insure those students have a solid environment in which to learn.

Jim Norman is a principal in the Seattle office of Sage Real Estate Strategies. He can be reached at jnorman@sageres.com or (206) 262-4300.

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