To get a good job, get a good education. That slogan has worked well to drum up business for the nation`s colleges and universities.
To get a steady job, get in touch with a good educational institution. That`s a lesson that many in the world of commercial real estate may be reciting before too long as they try to drum up business for themselves.
At a time when private commercial real estate activity is being marked
”Needs improvement,” educational institutions, especially those in the Chicago area, are making the grade with chalkboards full of large- and small- scale building plans. Taking notes is recommended.
”Education is less volatile than a good many other businesses, like automobiles or homes, and so we plan over a longer period of time,” said Rev. Raymond Baumhart, S.J., president of Loyola University. ”That`s the reason why we haven`t curtailed our building the way some for-profit companies have.”
Although they are seldom thought of in real estate terms, as developers or property owners are, universities and colleges are indeed both. And in a big way.
”They`re in the education business, but they are so big that they naturally end up in the development business, too,” said James Klutznick, president of SLC Properties Inc., a joint venture partner with Loyola in the mixed-use Granada Centre project at Sheridan Road and Devon Avenue.
In fact, if private commercial development doesn`t pick up in the next few years-and few think it will-universities may be the area`s most active builders.
A simple test will back the theory. Mark each of the following items true or false.
– Loyola has allocated funds for construction of a 15-story, 300,000-square-foot building on the corner of Wabash Avenue and Pearson Street that will house the business school, law library and data center for the downtown campus. Ground is expected to be broken next spring.
– The University of Chicago has been shopping for a site to build a new downtown graduate school of business. Two parcels in the Cityfront Center project east of Michigan Avenue and north of the Chicago River are reportedly under consideration along with at least one other site for a building of 250,000 square feet or more.
– The Illinois Institute of Technology has a $42 million, 10-story downtown center under construction at 565 W. Adams St., which when it opens early next year will house IIT Chicago-Kent College of Law plus master`s degree programs in business and public administration.
– De Paul University is formulating major expansion plans for its Near North Side campus around Fullerton and Sheffield Avenues, as well as for its downtown campus, where it is renovating the Goldblatts Building on State Street into classrooms and offices.
– The City Colleges of Chicago system has a new $90 million Wright College facility under construction at Montrose and Narragansett Avenues. The 450,000-square-foot-plus facility is scheduled to open in the fall of 1992. After the Wright building is completed, the City Colleges system will build a 250,000-square-foot West Side Technology Institute at 23rd Street and Western Avenue.
– Elgin Community College will break ground in November on a $22 million, 133,000-square-foot visual performing arts center. The school is also planning an $8 million, 42,000-square-foot business and industry conference center and a $10 million, 60,000-square-foot classroom addition.
– Northern Illinois University is set to begin construction of a $6 million, 46,000-square-foot satellite classroom center in Hoffman Estates that is expected to be completed for classes in the fall of 1992. The facility, which was unanimously approved by the village board Monday night, is on four acres of 780 owned by Sears, Roebuck and Co., which is building a new headquarters for its Merchandise Group on the site.
– The College of Du Page has in the planning stages an $11 million, 100,000-square-foot addition to the library/student center at its main campus at 22nd Street and Lambert Road in Glen Ellyn.
– Harper College in Palatine is about to embark on two major projects: a $6.75 million liberal arts building will be constructed for use in 1993 and, following that, the college will remodel its learning resource center at a cost of $2.37 million.
Answers: True for all of the above.
The number of school projects in the works or being contemplated is a reflection in part of changing times in education: Recruiting students is getting more competitive, keeping pace with technology is becoming more difficult and serving new and varied populations is taking more creativity.
”The universities are pushing ahead where no one else is building. They feel they have to,” said Michael Szkatulski, executive vice president of Stein & Co., a Chicago real estate firm that has done consulting work with educational institutions.
”Five years ago the reason might have been to replace or expand a building on campus as opposed to today, when they are saying they have to be a different kind of university in 5 or 10 years,” Szkatulski said. ”Their markets are shifting and they have to address that.”
Universities do have a variety of ways to pay for the development they feel is needed to meet these challenges, a luxury that few in the private sector enjoy since the real estate credit markets have tightened significantly in the last 18 months.
Most colleges have interest-earning endowment or capital building funds earmarked for facilities. Generally, schools also have the ability to borrow money at favorable rates for construction projects through educational bond issues. And the time-honored alumni contribution is also a key component in many development budgets.
But development is just one element of educational real estate. With so many existing buildings to manage, school officials are also cast in the role of big-time landlords.
The University of Chicago is one of the area`s largest property holders with 152 buildings on its 175-acre Hyde Park campus, plus another 90 off-campus buildings in Hyde Park and South Kenwood. The 242 buildings total more than 7.2 million square feet of academic, housing, administrative, service and commercial space.
(For comparison, Rubloff Inc., one of the city`s most prominent real estate names, manages a commercial portfolio of 37 million square feet, but that`s spread over 19 cities.)
And as any landlord knows, rehab and renovation are part of the job. Loyola, for example, has budgeted in the last five years between $19 million and $27 million annually for upkeep.
The College of Lake County spent about $500,000 in renovation and repair at its campus in Grayslake this year and will spend another $500,000 to $700,000 in 1992. A $1.4 million remodeling of some of McHenry County College`s existing space in Crystal Lake is also near completion.
Yet the full impact of Chicago`s educational institutions extends beyond their own borders, past the classrooms and dormitories they build for themselves to reach into the economic health of the communities in which they reside.
”The idea that universities are interested in the areas they are located in isn`t anything new. Maybe people are so focused on it now because there is so little else going on,” Klutznick said.
”But good universities have always been expanding and Chicago is blessed with good universities. The city has benefited and the suburbs have benefited.”
In the ultimate symbiosis, a pair of city neighborhoods that 15 years ago were merely considered part of the greater Lincoln Park area assmumed the moniker of De Paul University to become De Paul and West De Paul.
More subtly, North Park College and Swedish Covenant Hospital combined forces about 30 years ago to help create the North River Commission, which was charged with spearheading residential rehabilitation and commercial redevelopment in the Northwest Side neighborhood around the college.
According to the commission`s executive director, Joe Cicero, the civic organization has helped create more than $114 million worth of real estate improvements since 1975, including the recently opened Kimball Plaza, a $2 million shopping center at Lawrence and Kimball Avenues.
In a traditional ”college town,” the economic spinoffs can be
”phenomenal,” said Linda Boyer, economic development director for the City of De Kalb, home to Northern Illinois University.
”While we`re not recession-proof, the presence of the university eases any downturns in the economy,” she said.
The extent to which these educational institutions employ real estate expertise from the private sector varies, from simply hiring architects and contractors for new buildings to becoming full-fledged joint venture partners on complex mixed-use developments.
But with many real estate firms fighting downturns of their own by scrapping for fee-generating assignments, polishing apples for administrators at expansion-minded schools can prove a rewarding course of action.
”When it comes to space and real estate needs, the process is not terribly well understood (by the colleges and universities),” said Dominic Adducci, a vice president of Stein & Co., who has worked on four real estate consulting assignments for local colleges and universities.
”That`s especially true today in trying to deal with older students and non-traditional students. It`s not always easy to decide where to deliver those services or what the physical facilities used to deliver them should look like,” Adducci said.
Consider what is becoming the far-reaching realm of IIT. Adding to its main campus on the Near South Side of Chicago and its building under construction in the West Loop, the college this year opened a Wheaton campus designed to accommodate 1,500 students and a food safety research facility in southwest suburban Bedford Park.
”There`s a competition among institutions for students that you don`t always think about, and having Class A facilities helps,” Adducci said.
The deals in which colleges and universities become involved don`t have to be large ones to bring them into contact with the real estate sector, though.
Naperville-based North Central College leased a mere 2,100 square feet for a new satellite adult education facility at Manulife Real Estate`s Schaumburg Corporate Center, a transaction involving just two main players:
Manulife leasing manager Adair Schwartz and tenant rep Alan Raphaeli of Marc Realty.
(Facilities that universities and colleges own and use for higher education or health care purposes are exempt from real estate taxes and from federal income tax. But if a school leases space, there is no tax advantage.) Private sector real estate firms such as Stein can provide a range of services to educational institutions that might otherwise flounder in this increasingly complex commercial market.
There are smaller colleges looking to divest themselves of real estate assets to shore up their financial position, as was the case with Rockford College when it sold 52 acres of its campus to commercial developers last spring.
But for the most part, the larger universities with which Stein has worked are in the building mood and are seeking development advice.
”It`s almost a case where they don`t want to be in the real estate business. They don`t want to be seen as balancing funds given for their educational goals against their real estate objectives,” Szkatulski said.
The latest to join the crowd is Governors State University, which has set aside 250 acres on its 750-acre south suburban University Park campus for development of a business and research park. It has hired Rosemont-based Opus North Corp. to create a master plan and develop the first 90 acres in the project.
Rather than dictate day-to-day development policy, Governors State officials have defined the university`s objectives in a set of covenants and guidelines that developer Opus will follow in building, marketing and managing the project.
”Businesses will be able to benefit from the university`s resources while we will be able to strengthen career opportunities for students,” said Virginio Piucci, vice president of administration and planning at Governors State.
”We also see this park as a catalyst for growth of the university of for the south suburban area by creating a dynamic working relationship between the academic and business communities,” he said.
That reasoning is why research parks are one of the most popular university-affiliated developments, with more than 50 in business in the United States. Public/private partnerships linking business and academic interests with commercial development have already produced two notable projects here.
The Northwestern University/Evanston Research Park, part of a 24-acre downtown redevelopment zone in north suburban Evanston, involves the university, the city and developer Charles Shaw & Co., while the Chicago Technology Park teams the University of Illinois at Chicago and others with developer the Alter Group on the Near West Side of the city.
But it is not just in Chicago where colleges and universities are looking at creative ways to use real estate and enhance their relationships with private sector companies.
”A number of factors have forced schools nationwide to be more aggressive in their real estate activities,” said Stan Ross, co-managing partner of the accounting firm Kenneth Leventhal & Co. in Los Angeles in an article in the Commercial Investment Real Estate Journal.
Among those reasons: Universities often have land but need facilities and may be willing to trade developers one for the other; both colleges and businesses are learning the benefits of joint occupation of research facilities; and rather than hold vacant land, much of which is acquired by gift, schools are raising cash by building all sorts of projects instead.
For instance, the University of Virginia`s Real Estate Foundation, Health Sciences Foundation and Alumni Association, in association with Marriott Corp., developed the Colonnades, a retirement community in Charlottesville, Va.
The 117-room Washington Duke Inn & Golf Club on Duke University property in Durham, N.C., was developed by Equitable Investment Corp. under a land lease agreement that benefits the university`s library. The hotel pays rent for 39 years, after which Duke owns the project.
The Price Center student union/retail court at the University of California at San Diego is said to be the first student center in the country designed to accommodate private retailers. The university developed the facility and leases the space to food vendors, who in turn pay a levy of gross sales to fund student activities.
