COVER STORY, MARCH 2009

MAKING THE GRADE
University improvements are playing a big role in catalyzing the Midwest’s real estate industry.
Ashley Ball

As the recession continues chipping away at various sectors in the commercial real estate industry, colleges and universities are passing the endurance test with flying colors. With multi-million dollar expansion projects in the works and hefty endowments in place to support significant growth, higher learning institutions appear as strong as ever. Through the creation and retention of town-gown relationships, the effects of schools’ successes in the Midwest are stretching far beyond campus borders.

With a construction campaign budgeted at approximately $2.5 billion, the University of Michigan in Ann Arbor is undergoing one of the largest university building campaigns in the country. Funds for the massive building efforts were raised through the Michigan Difference campaign, which was initiated by the university in May 2004. Before officially ending on December 31, 2008, the campaign had raised more than $3.1 billion.

“Support from the Michigan Difference campaign has enabled the university to increase student financial aid, create new student programs, hire and retain outstanding faculty, support groundbreaking research, and provide new buildings for healthcare, teaching, arts and entertainment, and more,” explains Sue Gott, a university planner for the University of Michigan. “Our facility improvements play a vital role in assisting the university with contributions as a premier research university, and maintaining our exemplary academic initiatives and instruction, clinical care services and our robust athletic program.”

While the university’s impetus behind its development program may be based on its own needs, the school’s ability to maintain a strong reputation has enabled the surrounding city of Ann Arbor to thrive. The modernization of college campuses has become a tool for recruiting students and faculty. In many cases, a steady stream of students means a steady stream of business for the local commercial real estate industry. With more than 39,000 students and approximately 5,000 regular faculty members, the campus’ population is clearly a force to be reckoned with in terms of potential shoppers or tenants.

“The interesting thing about Ann Arbor is that there is actually a barrier to entry into the market from a retailer standpoint,” says Tony Schmitt, a vice president of Southfield, Michigan-based brokerage firm LaKritz-Weber & Company. “No matter what goes on, Ann Arbor — because of the university — has provided a great opportunity for retailers to do well.”

The University of Michigan’s Board of Regents has approved the $108 million purchase of the former Pfizer Inc. property located adjacent to the university’s north campus in Ann Arbor, Michigan.

Ann Arbor’s retail sector is not the only area of the commercial real estate industry that has benefited from the university’s expansion. In December, the university’s Board of Regents approved the $108 million purchase of pharmaceutical firm Pfizer Inc.’s vacant property. Situated adjacent to the university’s North Campus, the 174-acre site includes approximately 2 million square feet of lab and administrative space in 30 buildings.

“These facilities offer an opportunity to create at least 2,000 jobs during the next decade and accelerate expansion of the University of Michigan’s research activities critical to the state’s economic development,” Gott says.

The university’s Pfizer acquisition promises to breathe new life into the private sector of Ann Arbor’s economy. Nevertheless, the school’s campaign is not the only campus expansion program offering a ray of hope for its host city.

At the University of Wisconsin-Madison, more than $700 million of new building projects are underway, and approximately $500 million of additional projects are in the planning stages, according to Dan Okoli, a university architect and the director of capital planning and development. Additionally, $600 million to $700 million of new building projects have recently been completed on the urban campus, which stretches into the epicenter of the state’s capitol.

“The primary driving force [of our expansion] is to continue to create a great university,” Okoli explains. “Then we attract the donors who like what we do, and we also attract the funds for different research programs from agencies who find the university highly competitive.”

Beyond its initial intentions — like the University of Michigan — the school’s impact on the economy of the surrounding city is easily recognizable. The state government and university are the driving forces behind the economy of this double-duty metro area, which serves as both a capitol city and a college town. According to the United States Department of Labor, the metro area posted a December unemployment rate of 4.1 percent, well below December’s national average of 7.1 percent.

Although the university’s development boom cannot be directly linked to job retention, construction projects of this magnitude clearly create a plethora of employment opportunities. Nevertheless, construction jobs are not the only aspect of the economic stimulus that the projects are providing. Completed buildings create the need for new employees ranging from janitors to rocket scientists.

As part of its multi-billion dollar construction campaign, the University of Wisconsin-Madison has completed the first phase of the Wisconsin Institutes for Medical Research located on the west end of the campus in Madison, Wisconsin.

One of the largest projects currently underway at the university is the Wisconsin Institutes for Discovery, which is expected to draw many research professionals and eager students to the city. The $200 million facility will bring together biology, bioinformatics, computer science, engineering, nanotechnology and other fields to spark new scientific and engineering breakthroughs.

“The uniqueness of the project is that it is a place for interdisciplinary science research that brings together researchers from the biological sciences and engineering and computational sciences so that they can work together in cross disciplines,” Okoli says.

But this haven for innovation is anything but exclusive. The project, which was spearheaded by a $50 million private donation, is being built adjacent to a new student union that is also underway. As part of the institute’s outreach program, students ranging from kindergarten to 12th grade will have access to the building. Together, the Wisconsin Institutes for Discovery and the new union will serve as a town center for the community.

In addition to creating jobs, the university’s master plan is bolstering the Madison economy through its initiation of private/public partnerships with local development firms. Most recently, a partnership between the university and locally based Executive Management Inc. opened University Square. The 12-story, 1.2 million-square-foot mixed-use building includes a 350-unit privately owned apartment component, a 140,000-square-foot retail component and a 250,000-square-foot tower for various university services. Retailers taking up space within the building are looking to tap into the continuous influx of co-eds entering the university.

The projects at the University of Michigan and the University of Wisconsin make it apparent that a byproduct of a university’s investment in its own future is actually an investment in the future of the entire community. Recognizing this reciprocal relationship, the city of Carbondale has been a longtime investor in Southern Illinois University-Carbondale (SIUC).

“The city of Carbondale and SIUC have a partnership relationship that spans almost 150 years,” explains Samuel Goldman, SIUC Chancellor. “SIUC makes substantial contributions to the economic, social, and community life of Carbondale; in turn, the city is home to SIUC.”

Most recently, the city of Carbondale has shown its confidence in the university with an agreement to invest $20 million for the expansion and renovation of athletic facilities at SIUC. The $83 million project is part of the school’s larger improvement campaign that will include the renovation/expansion of Morris Library, the construction of a new student services building, and the construction of a transportation education center, which is awaiting an undisclosed amount of funding from the state of Illinois. 

“This project will positively impact the employment of construction trades from the Southern Illinois region,” Goldman says. “For instance, the SIUC Board of Trustees is about to act on $30 million in construction contracts for the new football stadium, and about 70 percent of that will go to local contractors. In addition, the university previously contracted for preliminary work on the athletic facilities totaling $3.6 million, all of that going to local firms.”

Ultimately, universities’ expansion programs help schools maintain strong reputations, which keeps students interested in attending those universities. Once they are enrolled in the school, students become local consumers who look beyond the campus boundaries to meet their needs. From fast food restaurants to medical office buildings, every sector of the commercial real estate industry has the ability to benefit from a successful university.

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