Education Sector Needs to Embrace Adaptive Reuse

Office-to-residential conversions and other creative solutions can serve as a model for shuttered campuses across the United States, advises A&G's Christian Koulichkov

NEW YORK, Aug. 14, 2024 /PRNewswire/ -- The push to turn office buildings into apartments and condos is a potential model for trustees, bondholders and communities dealing with the rising tide of shuttered college campuses, advised a real estate sales veteran from A&G Real Estate Partners.

In a July 26 New England Real Estate Journal column ("It's time to get creative with closed college campuses"), A&G Real Estate Sales Managing Director Christian Koulichkov notes that schools are closing at a rapid clip due to "higher costs, shrinking enrollments, reduced state funding and severe demographic headwinds."

That means more education stakeholders face a tough question—what to do with all those underused buildings and centrally located, multi-acre campuses.

"In earlier eras, the seller and its real estate representatives had a better chance of finding a like-kind educational user to buy the entire campus," Koulichkov writes. "Today, the struggles in higher education require more creative thinking, marketing, and experience to drive value for the real estate to benefit trustees and/or creditors."

In the piece, he calls for closer collaboration among boards of trustees, lenders, municipal officials, community groups and real estate consultants. This approach, Koulichkov notes, is already getting results.

He points to the New York State Police Auxiliary Academy's agreement last year to lease the 200-year-old campus of Cazenovia College, located about 20 miles from Syracuse:

"The closed school's 27-acre, 14-parcel main campus and large athletic complex now serve as a multifaceted training center to comply with the governor's mandate to replenish the ranks of the NYSP. The campus was an economic driver for Cazenovia, and with the lease in place dozens of college workers were retained or rehired."

Other schools are repurposing their real estate after downsizing, rather than shuttering, their operations. In Maine, for example, nonprofit Unity Environmental University has attracted multiple adaptive-use buyers for its original 225-acre campus at 90 Quaker Hill Rd. in the town of Unity. The school (formerly known as Unity College), moved to New Gloucester after successfully shifting to remote and low-residence education.

When it comes to adaptive reuse in education, Koulichkov advises, "there are good opportunities for real estate investors, with acquisition costs well below replacement costs … Large, rural college campuses can be strong candidates for things like senior housing, corporate or religious retreats, or rehab centers."

In urban markets, in particular, "the reuse of schools' excess residence halls, single-family homes, warehouses, and undeveloped land parcels can yield solid ROI even with retrofit costs factored in."

But community-engagement is key: "Sellers, investors and their third-party real estate advisors need to communicate and collaborate extensively with public officials and other parties. Zoning changes and building upgrades might be required to make creative solutions viable."

In-depth real estate analysis and evaluation, including detailed reports on potential new uses and/or users, can help sellers develop the right marketing strategy, Koulichkov advises.

Patience helps, too. "It is one thing to sell a triple-net lease drugstore on Main & Main to a 1031 Exchange investor within an expected cap rate range," he writes. "It is another to secure a new user, as well as full community approval, for a centuries-old college campus with acres of real estate and dozens of buildings that never predicted another use."

Moreover, the complexity of the college's debt can also greatly affect the marketability and the timing of a sale.

In the conclusion to the piece, Koulichkov writes that imagination can translate into solutions for distressed educational real estate:

"The new buyer of that bucolic New England campus could end up being quite a surprise, so stay open to unusual possibilities. One college campus sold in bankruptcy to the Freemasons, who turned it into senior housing, community space and a film set. And who could have imagined that the ultimate lessee of Cazenovia College would be the New York State Police?"

The full article is available at:
https://nerej.com/it-s-time-to-get-creative-with-closed-college-campuses-by-christian-koulichkov

Media Contacts: At Jaffe Communications, Elisa Krantz, (908) 789-0700, [email protected].

SOURCE A&G Real Estate Partners