A University's Nest Egg in One Basket

William Peace University, an 800-student liberal arts college in North Carolina, plans to spend as much as two-thirds of its endowment on a single piece of property.

The big bet is on a shopping center across the street from its campus in Raleigh – with up to $21 million of Peace’s $33 million endowment on the line. The plan has deepened criticism of the university by already suspicious alumnae, including major donors.  

Critics accuse Peace’s current administration of undue secrecy. The university, for instance, declines to name who currently sits on its Board of Trustees, although the information will eventually become public in nonprofit tax filings.

The land deal is only the latest in a series of controversies that involve nearly every aspect of Peace’s operations – the once all-women’s college began admitting men, changed its name, asked faculty to sign agreements giving away their rights to take the university to court, downsized and is attempting to grow its enrollment, according to local news media accounts.

Now, the university plans to buy the Seaboard Station shopping center from a bankrupt company. The shopping center is 92 percent occupied by tenants and is bringing in money, according to bankruptcy court filings, but the company that owns Seaboard had other troubles. Peace -- which had to outbid other commercial real estate firms in order to secure the rights to buy the shopping center -- has at most a few weeks to make a final decision on the deal, according to the university’s own timeline.

It's quite common, of course, for colleges to grab up land adjacent to their campuses when property becomes available. What's unusual is for an institution to spend so much of its endowment -- and to do so as so many donors are expressing concern.

Karen Sinclair, the Peace alumnae association chairwoman in 2009-10, when the university was led by another president, said there is skepticism across the entire community about her alma mater’s investment sense.

“I think the idea that you would take 70 percent of your endowment and put it into a real estate venture -- and a retail real estate venture at that -- defies logic,” said Sinclair, who is also a local businesswoman.

There are also concerns about the endowment that extend beyond the university’s plans to purchase Seaboard Station. For one thing, some donors are concerned money they gave for scholarships and other uses will be spent on a venture they don’t approve of.

Bill Jarvis, the managing director of the Commonfund Institute, which advises nonprofit investors, said the structure of such a deal requires attention. “Most endowments consist of donor-restricted funds that can only be used for the purpose intended by the donor,” he said. “So to the extent that the university is contemplating using donor-restricted funds for this transaction, additional scrutiny would be required.”

The university did not say how much of its assets are restricted.

Endowment managers are also obligated by North Carolina law to diversify their investments “unless the institution reasonably determines that, because of special circumstances, the purposes of the fund are better served without diversification.”

Justin Roy, Peace’s interim vice president for enrollment and marketing, said officials are “very well aware of the laws that govern endowments.”

A top university official has said privately in e-mails obtained by Inside Higher Ed that endowment returns are not projected to increase if Peace purchases Seaboard Station.

“The university’s projected return on its endowment is 5.5% over a rolling three-year period, which reflects the long-term investment objective of the fund,” reads a standard line in similar e-mails to several donors from Julie Ricciardi, the vice president for the office of engagement. “The 5.5% objective is the same before and after the Seaboard Station purchase.”

Prominent alumnae and donors have not shied away from expressing concern about use of the endowment.

Linda Dark, who chaired Peace’s alumni association in 2000-1, said she is now concerned about the current administration’s use of a $90,000 scholarship fund started by her family and named after her father.  

She said that even before the controversy about the shopping center, the university had been unable to provide her a “coherent list” of who receives the scholarship in her father’s name.

“Ever since this new administration has taken over we’ve had one problem after another with them about the scholarship, about who is receiving the scholarship, about whether they are meeting donor intent,” Dark said.

The university, which critical alumnae still refer to as “Peace College,” was founded in the 1870s and for most of its history was a two-year women’s college. In the 1990s it added four-year degrees.

In summer 2011 – a year after current President Debra Townsley arrived at Peace from Nichols College in Massachusetts -- Peace officials announced two big decisions: the college would begin admitting male students and it would change its name.

Alumnae said their discontent has little to do with the students being male but rather with what they see as a diminution in the quality of the institution. “They didn’t know much of anything, I guess, about women’s colleges or southern colleges,” said S. David Frazier, a former president of Peace who left the college in 1988 after 23 years.

Frazier, who now lives in Tennessee, said Townsley “knew very little and cared even less about the traditions of the school or the traditions of the south.” Frazier was one of the three former Peace presidents who wrote a letter last year criticizing the college’s direction.

A university spokeswoman, Jennifer Fair, said William Peace officials were able to offer only limited comments now because of a confidentiality agreement involving the real estate deal. She said she could make officials available after the deal is signed.

But in a telephone interview, Roy said "change is hard, I gotta tell you." He said the university has had record enrollments, is raising money and is reaching out to discontented alumnae.

Closing the Deal

To get where it is – close to closing the deal, if it wants to – the university had to outbid other investors, including commercial real estate firms.

Frazier said the university’s price “doesn’t make any sense at all when one of the largest, oldest and most iconic developers and builders stopped bidding on it.”

George York, the president of that company, York Properties, said he can’t be sure if Peace overpaid or not because he can’t be sure how the university plans to use the property. And the university may have paid a premium for land adjacent to its landlocked campus. Peace is already overflowing and has had to send students to a housing complex seven miles away from its downtown campus.

“We had not gotten to that number, but, again, it wasn’t wildly different,” York said of the $20.75 million bid Peace has made for the property. “We think a lot of the property.”

Frazier said one firm had offered to pay only $16 million for the Seaboard Station property.

York said it was impossible to do an apples-to-apples comparison of what his client wanted from the property and what Peace wants.

Matt Hamill, a senior vice president at the National Association of College and University Business Officers, said by one measure Peace’s planned deal may look unusual. But, by other measures, it may make sense.

“The typical response would be that they are putting too many eggs in one basket – that perspective, however, I think is far too narrow,” he said. “Instead, in addition to you would want to look at the financial return to the college. For, example, the income from the shopping center could be steadier, less volatile year-to-year than other forms of investments – it could even be greater than (other investments)."

Several people affiliated with Peace said the university’s intentions for Seaboard Station remain unclear.

Roy said the goal was to buy the property because students use it.

“That is where our students work, they work in the restaurants, they work in the retail, it has a fantastic reputation, they have great tenants, that is where our students work, eat, shop, play,” he said in an interview.

Still, there is some concern in Raleigh that Peace could bulldoze the shops or otherwise turn it into something that is more for the university than the neighborhood that uses it now.  If that would happen – or even if current shop owners continue to believe that might happen – Peace could hurt its return on investment if tenants give up their leases.

 “That uncertainty results in a lack of investment,” said Mary-Ann Baldwin, a member of the Raleigh City Council. “It could cause people to move, so my hope and the tenants’ hope is that Peace or their property management representative will be willing to offer long-term leases, which will reinforce their intentions, but also give the business owners the assurances they need to invest.”

The mistrust and doubt may be hampered by what some donors call the university’s unresponsive attitude.

Two hours after a Peace spokeswoman Fair was asked by a reporter in an e-mail why university officials had not told Dark which students were receiving scholarships in her father’s name, Ricciardi sent an e-mail to Dark that acknowledged some scholarship recipients had not met the full criteria for receiving the scholarship.

Or take the university's refusal to release the names of its board members, a stance that has been questioned by The News & Observer, which has been doggedly covering Peace’s maneuvering. Asked why, Fair said in an e-mail, “It is the university’s policy to not release the names of the members of its board of trustees.” Governing board members’ names are made public in federal nonprofit tax filings, but there is typically a lag time of a year or more.

Frazier, the former president, said the university’s policy made no sense.

“That was one of our selling points, really, the kinds of people we had in leadership positions on the board,” he said.