In a recent Law360 article, Thompson Coburn Higher Education practice co-chairs Aaron Lacey and Emily Murphy explored a growing trend among colleges and universities: leveraging real estate to shore up their finances.
Aaron noted the shift is often a last resort for institutions facing significant financial pressure. A prime example is Marymount California University, which closed in 2022 and sold its real estate to create an endowed scholarship fund. “It was not their preferred route, but what was left for them,” said Aaron. “The last five to 10 years has been a period of extraordinary change in higher education.”
Aaron emphasized the urgency of the situation, saying, “During the last year or two, we get a call from an institution every six weeks saying they have four months of cash and say, ‘We need a strategy, we need some tools, come talk to our board.’”
Emily noted that selling or otherwise monetizing real estate is one way for cash-strapped colleges to try to stabilize their finances. It’s usually not the first choice — but it’s always a point of discussion.
“Real estate transactions are not the last resort, but they’re also not the ideal solution because they’re not long-term,” she said. “But when it gets down to brass tacks to keep going, they’re being squeezed.”
There are often regulatory considerations when conducting real estate transactions. Very occasionally, the federal government has an interest in title because of a historical grant, and the U.S. Department of Education has to directly sign off on a real estate deal, Aaron said. “If you sell an asset and replace it with a lease, you have a long-term liability. It depends on how it’s structured, but typically that will have a negative impact on your balance sheet.”
Read the full article here.
