Education and University Appraisals

Three Concepts to Better Understand Before Your University Campus Appraisal

A recent Forbes article tried to predict how the changing landscape of education will impact college campuses. It claims, “…to say that it’s not that hard to paint a picture of how 25% of existing institutions—be it 550 nonprofit and public four-year institutions or 1,100 degree-granting institutions—close, merge or declare bankruptcy in the years ahead.” We know traditional universities are showing the strains of an evolving business model, but not all is bad news. In this turbulent time, the same article predicts many colleges will likely grow at the expense of those that fail, and some disruptors will see significant gains. Throughout this process, understanding the value of your university campus real estate (land, structures and improvements) will be more important than ever. So, we have outlined the three most important concepts you should know before undergoing an appraisal.

One plus one typically equals one

Typically, the single most important concept to keep in mind during a commercial appraisal for any educational campus is the thought of single economic unit. Because of the very specific nature of buildings needed by a university, their often-close proximity to each other, and the complementary nature of the structures, it is very unlikely a buyer would be interested in dividing the assets. Residence halls, for example, are not easily renovated into apartments and lecture halls are not typically used for any other purpose. Hence, an entire campus will most often be appraised as a single unit.

A Degree in marketing (demand)

We don’t have to tell anyone in this field that education is evolving. From kindergartners using iPads to virtual classrooms that bring together PhD students across the globe, how students access education is changing. And those changes are impacting the demand for physical locations for those in education, especially universities. The demand, or lack thereof, for a specific campus is considered within the business value of an appraisal.

“Times are changing, and the way students get their education is not the same as how you and I did,” explains Charles Argianas, founder of Argianas and Associates.  “Students aren’t going to the same types of colleges and that impacts the appraisal value of a campus. One campus we worked with was a rural school without a lot of economic opportunity surrounding it. So even though the buildings did have value, there was such a depleted need for the school to exist in that location that it negatively impacted the value.”

“In contrast, we’ve appraised plenty of schools with robust values,” Charles continued. “One in particular was located in New York, a stone’s throw from global companies’ headquarters. The buildings had historic landmark status, enrollment was good, and the endowment was strong. This campus had a great story to tell – and it was reflected in their valuation because it showed strong market demand for what they are providing.”

Know who wants to be in your seats

Always fully understand your rationale for undertaking an appraisal for your university or campus. That is the single most important piece of information you will need to share with your commercial real estate appraiser. Schools who are thriving – the winners in that Forbes article – are continuing to eye expansion so both market value and insurance needs are important reasons for determining value. Campuses with excess land are often considering how to sell that unused real estate to help better position the school financially. And yes, schools who are looking to close or change their model to one which requires less physical space are looking to determine value for a sale.

Who buys campuses you wonder? Religious schools and foreign state-sponsored schools, especially Chinese and other Asian education providers, have made acquisitions in recent years. For elementary and high schools, neighboring districts sometimes need to expand. But for older university campuses, we find they often are positioned on valuable land with land value sometimes exceeding the value of the property as improved, attracting diverse buyers such as companies seeking a new corporate campus or investors looking to create a multi-use development.

Argianas & Associates is here to help you during these changing times in education. If you have any questions about a university campus appraisal, do not hesitate to give us a call at (630) 390-0113. To receive more real estate appraisal resources, be sure to join our mailing list to receive our e-newsletter.