||Schools and Colleges
Schools and colleges are an asset that Greater Boston
has in abundance. As much as the Red Sox, its hospitals,
and its high tech industry, academia is part of the image
this city projects. Schools and colleges are a source of
vitality, ideas, and income. Emerson College and Suffolk
University are part of the transformation of the Combat
Zone. Johnson & Wales' new campus is integral to the
revitalization of downtown Providence. Planners use
colleges the same way retail developers use anchors, for
their spin-off effects.
Colleges are some of the largest and most powerful
institutions in the city. Large and powerful institutions
make easy targets for politicians, as Harvard well knows
from the reaction to its acquisitions in Allston. Private
schools and colleges take more than their share of
rhetorical barbs. Like other large institutions, colleges
need thick skins. The irony is that, if enough barbs were
to hit home and cause a school or college to want to
move, it would be the city as much as the college that
would stand to lose.
Fortunately for cities, schools seldom move. Private
schools and colleges are born from communities. Beyond
the initial decision of where to locate, made when a
school is young, schools exercise little choice in
location. For the most part, schools grow by expansion in
place, through absorption of abutting property. Because
they lack powers of eminent domain, schools are often
obliged to pay top dollar for property to accommodate
their growth. To acquire property, colleges at times
compete against themselves, in markets that are of their
own making. Property adjacent to a college often has one
value to the college and a different, substantially
lower, value on the general market. It is the lucky
neighbor whose property is within the sphere of a
university's expansion. Schools grow horizontally by
absorption and vertically by new construction.
Construction sends a message. It says that the school is
prospering. It says, "Enough people want to be here
that we need to build this new building." For a new
school, construction is also a statement of identity. It
announces to the rest of the city, "We are
The valuation of a school's real estate differs from the
valuation of an office, a lab building, or an apartment.
Because schools seldom relocate, they seldom sell. The
Sales Comparison Approach therefore is not as useful as
it is in the valuation of other property types. Schools
are even less frequently rented, so analysis through the
Income Capitalization Approach is not useful, as well.
A school is a special use property, for which the
standard measure of value is cost. If a school builds a
building, it pays by paying a contractor for the real
estate. At that point, it is hard to argue that its value
is less than its cost. Cost is the best measure of value
so long as the community that built the building is
solvent and is committed to maintaining the building (or
the campus) as its home. Remove those conditions,
however, and the building faces the market test. Former
school buildings that sell for new uses often do so at
prices substantially below the level of construction
cost. One relevant question, then, in the valuation of a
school is the value of the asset for alternate use.
Another is the value of the vacant land.
Whether a school has value at the high or the low end of
the range depends not so much on the market but on the
health and needs of the school itself. An appraiser
engaged in the valuation of a school or college needs to
inform the client of the high end of the range and of the
conditions that produce value at that level. The
appraiser is also obliged to inform the client of the low
end and of the conditions that may make it more likely.
The choice of a final value estimate is at the high end
if the community that built the school is financially
healthy and displays its health by spending on the
physical plant. The value is toward the low end if the
school community is in a process of contraction. For the
appraiser to display the full breadth of the range is the
best means to provide a complete picture of value.
Eric T. Reenstierna, MAI
The Reenstierna Associates Report is published as a
service to the clients of Eric Reenstierna Associates and
other real estate professionals. The views expressed are
those of the articles' authors and do not necessarily
reflect those of other members of the organization.
Copyright 2000. All rights reserved.
Eric Reenstierna Associates
24 Thorndike Street
Cambridge, Massachusetts 02141
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