William Peace University is proposing to invest nearly two-thirds of its $33 million endowment to acquire the adjacent Seaboard Station retail center that has been in bankruptcy for more than a year.
Under the terms of a purchase agreement announced late Friday, William Peace would pay $20.75 million for the 92,000-square-foot retail center. Higher bidders could still emerge under the sale process outlined in Seaboard’s bankruptcy filings, and the sale will need to be approved by the bankruptcy judge.
But William Peace’s Board of Trustees has unanimously agreed to acquire the property for that price using endowment funds, President Debra Townsley said Monday. It’s a bold and risky move for a university that has made a string of such decisions over the past two years.
“I suppose any decision trustees make carries some risk, but the trustees have done their due diligence, I believe, and have really investigated options,” Townsley said. “… They’ve decided this is a good investment for the school.”
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William Peace outbid several experienced retail operators to put the property under contract. Asked whether she had concerns about the price William Peace has agreed to pay, Townsley said, “Nope, or I don’t think we would have agreed to it.”
William Peace’s interest in Seaboard has raised concerns among some of the center’s tenants and residents in the surrounding Mordecai and Oakwood neighborhoods. They fear the university will ultimately close the center and use the land for student parking, dormitories or activity fields.
Townsley reiterated Monday that the university’s intention is to retain Seaboard’s retail space. She said the university believes the returns it will get from owning Seaboard will be comparable to those it would get by investing the money elsewhere – with the added benefit that it now owns an asset that its students frequent daily.
“This is a trend in higher education to purchase retail that is adjacent to your campus or nearby your campus because it really does enhance the campus experience,” Townsley said.
Still, having so much of its endowment tied up in a single investment is unusual, as most colleges and universities prefer to spread their investments across a range of asset classes to reduce risk. The average college or university endowment has about 7 percent of its assets in real estate investments, according to the National Association of College and University Business Officers.
“It is a bit unusual for an institution to have nearly two-thirds of their endowment assets in one investment or asset class, but if the investment is of high quality and the income it produces is stable, the high percentage may be warranted,” said Kenneth Redd, director of research and policy analysis for the association, which represents business and financial officers at more than 2,500 schools.
Seaboard tenants mum
Many of Seaboard’s tenants declined to comment Monday on the possibility that the university could soon become their landlord. After several lean years, Seaboard is now thriving, with more than 90 percent of its space leased to such tenants as Tyler’s Taproom, O2 Fitness, 18 Seaboard and the pet supply store Phydeaux.
Seaboard’s owner, Gregory & Parker, filed for bankruptcy in February 2012 after being unable to refinance its loans. The retail center was put up as collateral for loans Gregory & Parker used to invest in numerous properties.
The company’s lenders have repeatedly rejected its repayment plans, which led to last week’s motion to move ahead with the sale of Seaboard. Regions Bank is the company’s largest creditor with a claim of more than $19 million.
If William Peace does purchase Seaboard, some fear that eventually the land-locked university’s interest in the property as an investment will be superseded by its need to grow. The university’s enrollment last year rose 9 percent to 791, and Townsley has said her goal is to increase it to 1,000.
“The immediate future is not where I see potential conflicts; it’s the longer term,” said Joshua Logan, whose family owns Logan’s Trading Co.
Logan’s is not part of the Seaboard property, but shares parking with the retail center and benefits from all the traffic it generates.
Logan also worries about William Peace’s lack of experience when it comes to investing in retail centers.
“My candid concerns are they’re a higher learning institution,” he said. “That’s where their experiences and expertise lie and I am not sure that operating a retail shopping community is something that is necessarily going to be in their wheelhouse.”
Continuing ‘a great thing’
Townsley said the university would hire a property manager both to run the center and to provide suggestions about how to improve it and what to do with a back portion that remains undeveloped.
“Should we change signage so people know what’s back in there? … How do we market it?” she said. “The Parkers have started a great thing with Seaboard, and we’d like to continue it.”
Since becoming president in 2010, Townsley has overseen a wave of major changes at the university, which was founded as a women’s college in 1857. In July 2011, the university surprised and angered many of its alumni by announcing that it would open its doors to male students and drop the Peace College moniker – both of which it did last fall. In a bold move to appeal to students and parents, the school decreased tuition by nearly 8 percent last year.
Acquiring Seaboard would bring even more scrutiny to the school, particularly by those with a vested interest in seeing the retail center succeed. One of them is York Properties, which recently invested $3.7 million acquiring and redeveloping the adjacent 15,000-square-foot retail center at 111 Seaboard Ave.
York was among the parties interested in Seaboard before William Peace put it under contract. “It got past the point where it made sense to us,” George York, the company’s president, said of the bidding process.
But York is optimistic that both the university and the retail center can coexist and thrive.
“I can envision the retail remaining and being a thriving part of a bigger campus …,” he said. “Maybe I’m dreaming, but I can see how they could work together.”