While the rest of the real estate market sputters, private schools and colleges in New York City have been snapping up real estate.
Experts say the recent burst of activity does not mean schools are recession-proof, but that many of them are well-positioned to take advantage of the soft market.
The Convent of the Sacred Heart School, for example, closed on a three-story building at 406 East 91st Street in September, paying $23 million for a space it plans to use for athletics. A month earlier, the Spence School, a private girls’ school, inked a deal to purchase a mansion at 17 East 90th Street that is adjacent to the school’s main building. Columbia University is pressing forward with its $6 billion Manhattanville expansion plan while New York University has been closing deals Downtown, including last summer’s purchase of a new dormitory at 316 Third Avenue and a building at 726-730 Broadway that it bought in December for $210 million.
“This is a wonderful time for them because they don’t have as much competition when they try to acquire property,” said Dan Fasulo, managing director at the research firm Real Capital Analytics.
Indeed, purchases by Manhattan schools and other non-profits mushroomed last year, accounting for 6 percent of overall sales in 2008, up from about 3 percent between 2004 and 2007, according to Real Capital.
“A couple of years ago, whenever a property came up for sale, there were 10 or 20 buyers. Now, you get five,” Fasulo said.
In the past, schools and colleges have been notoriously hungry for real estate to accommodate aging facilities and expanding student populations.
“On the Upper East Side, there are probably a dozen private schools that have been in the market for expansions,” said David Lebenstein, senior managing director at Colliers ABR and director of the firm’s non-profit division. “If a townhouse comes up for sale right next to them, they’re all over it, irrespective of the market.”
Given the down economic climate, Lebenstein said some schools may reconsider expansions while they assess any negative impacts on their enrollment or endowments. But ultimately, schools press forward whenever possible.
“A lot of these older schools, their plants are obsolete. Whether or not we’re in a recession, they need to go forward with that,” he said.
On the collegiate front, Columbia and NYU have argued that they need updated
facilities and more space to house students, faculty and laboratories. In NYU’s case, the university borrowed to finance its recent purchases, according to John Beckman, a university spokesman.
“At this point, we don’t foresee the economy’s difficulties having an effect on the acquisition of these two buildings,” he said.
To be sure, doing business with a school is an elaborate process. Schools often have specific facility requirements, such as high ceilings for auditoriums and gymnasiums, and many schools looking to expand have narrow geographic constraints. The process also hinges on approval from the school’s board, which can mean cajoling staff, alumni, parents and neighbors to agree. Working with a school is rarely quick.
“Everyone has got to buy into the solution, or you’re going to have a problem,” Lebenstein said.
For the new Greenwich Village High School, slated to open in September 2009, finding the space for the private school to rent was more difficult than its founders anticipated before they signed a 10-year lease at 30 Vandam Street in November.
“It was tougher than I thought it would be to find a landlord that was amenable to having teenagers as tenants,” said Aimee Bell, a co-founder of the school.
But because schools are so eager for space, they can be attractive business partners, especially if they have strong endowment funds.
“Obviously, they are a logical buyer for adjacent properties and often can be the highest payer,” said David Noonan, a principal at Newmark Knight Frank who represented Verizon in the sale of its building to Sacred Heart.
In the current market, Noonan said, sellers are more likely to be patient with slow-acting schools in the absence of bank financing for developers. He said the same was true for other non-profits, like hospitals.
“This is a good opportunity for them because they face diminished competition and their views are long,” he said.
Brokers say the same goes for a variety of other non-profit and institutional buyers, like medical facilities. In December, for example, Memorial Sloan-Kettering Cancer Center bought a four-story commercial building at 1133 York Avenue for $42 million.
In this economy some developers are feeling fortunate to have the non-profit business. For some, housing needs of doctors is seriously bolstering business.
“Especially on the East Side, there are multiple medical institutions that are fairly landlocked,” said David Kramer, a principal at the Hudson Companies, which partnered with the Related Companies to develop a nine-building complex on Roosevelt Island. Several buildings there house doctors and medical residents from Memorial Sloan-Kettering Cancer Center and Weill Cornell Medical College.
Recently, the Hudson Companies completed a dormitory for NYU at 120 East 12th Street that was originally conceived as a condominium and hotel.
“We knew that it would be a less risky proposition if we had a deal already sewn up with NYU,” Kramer said. “If schools are in it for the long run, it’s a good time to buy low.”