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Cash-strapped college looks to ditch real estate
By ADAM C. SMITH, HELEN HUNT
© St. Petersburg Times, published June 22, 2000
ST. PETERSBURG -- Scrambling to regain Eckerd College's financial footing and credibility, the chairman of the board of trustees said Wednesday that the college will jettison a chronically troubled real estate venture and get back to educating students.
"We're not developers, we're educators," said Arthur J. Ranson III.
The still-evolving plans would end the school's widely watched experiment at bolstering a struggling liberal arts college by dabbling in real estate. Ranson said Eckerd will, somehow, divest itself of its College Landings residential development and may do the same with College Harbor, its continuing care development for the elderly.
First, however, the college must replace its top level leadership and deal with a cash-flow problem brought on by millions in unauthorized expenditures from its already small endowment, including $4.6-million to shore up College Landings.
Ranson's comments came the day after trustees announced that nearly two-thirds of the college endowment had been drained without board approval and that longtime Eckerd President Peter Armacost and chief financial officer J. Webster Hull were leaving the college.
News that more than $21-million of the $34-million endowment had been quietly spent on assorted campus expenses left stunned faculty members and community members wondering Wednesday how dire Eckerd's financial picture has become.
"This has been an embarrassment to the institution," said Ranson. "It is incumbent on us to rebuild whatever trust has been lost."
Still, Eckerd leaders declined to explain precisely how so much money was spent without board knowledge and who authorized the expenditures. But they insisted the 1,530-student college remains financially healthy.
"The good news is the entire iceberg has been identified, and it has been (addressed)," Ranson said of the endowment problem. "There is no more bad news."
He stressed the endowment money was spent on legitimate campus needs, and "we accounted for every dime."
Nevertheless Eckerd faces some big problems, at least in the short-term.
Eckerd's business office is such a mess that the college can't sell bonds for at least several months. More than $6-million of the endowment went toward the new Omega dormitory that was supposed to be financed with bonds. That proved impossible, because the college couldn't provide its auditor with enough records to complete its annual report.
The college's 1998-99 audit was submitted a week ago. The 1999-2000 audit, Ranson said, should be in by fall. Then they hope to float bonds to repay the $6-million to $7-million "loans" from the endowment. Of course, to float bonds, the college needs a new financial officer, and trustees are scrambling to find a replacement for Hull.
The shrunken endowment also means the college will have roughly $2-million less in investment income to use toward expenses. That's about 8 percent of $25-million net operating revenue, and its loss will require cuts. First to go: free HBO in the dorms.
Ranson said the board is still identifying other potential cuts, but layoffs and cuts in core academic programs are unlikely. Between tuition, room and board and assorted other expenses, students pay about $30,000 a year to attend Eckerd, he said.
Trustee P.N. "Bud" Risser called the college's troubles "significant, but manageable in a business context. We're concerned but not panicked."
Meanwhile, plans for an aggressive new fund drive aiming at $60-million in donations have been shelved indefinitely. Trustees first are concentrating on replenishing the endowment by Labor Day, largely by dipping into their own pockets.
Even before the recent heavy spending of endowment funds, Armacost had cited Eckerd's small endowment as a big obstacle in competing against other small, independent colleges. Building up that endowment had long been a key Armacost priority. Instead, the final years of his tenure saw that endowment dramatically depleted.
Colleges, as well as churches and other non-profit groups, create endowment funds as a way to build long-term financial security. Typically they use investment returns to supplement their annual operating budgets and avoid dipping into principal.
Protecting principal is important because once principal is spent, it no longer generates income. The policy also appeals to donors as a way to give a gift that endures.
Armacost said Wednesday that he was kept in the dark about the endowment spending, but Hull suggested the Eckerd president had been informed.
"We have differences of opinion on any number of (topics) and this is one of them," Hull said in a telephone interview.
For trustees, a key priority now is to stop the losses from the real estate projects.
"We cannot continue to let the auxiliary enterprises bleed the main animal here -- which is the college," Ranson said. Eckerd's attempt to develop unused land at the western edge of campus has been an expensive failure. The College Landings residential development already has cost the college $9-million, including $4.6-million from the endowment, while College Harbor, which offers both rental apartments and health care, is losing hundreds of thousands of dollars a year.
Ranson said the trustees are so eager to get out of College Landings that they are willing to consider outright sale of the property, reversing previous policy to retain title while granting developers long-term leases.
Leasing has not worked. When developers of both projects filed for bankruptcy, the college was forced to step in to protect its interests.
At College Landings, only 52 of the 260 planned units were actually built, but the developers pledged college land as collateral for loans. Ranson said Eckerd has been working for the past year and a half clearing title to property, a project that probably will take another year to complete.
"It's been a thorn in the side," Ranson said.
He said former vice president of finance Hull spent a "huge" amount of his time on issues related to College Landings, from bankruptcy court filings to placement of the oleander hedges.
Residents have complained vociferously about the lack of progress on completing the development they were promised.
"This project was a disaster," said Gene Menendez, a director of the homeowners' association. "These guys had no clue about business."
Menendez said he believes Eckerd will have to sell the land outright for the development to succeed. People do not want to pay $200,000 for a long-term lease on a waterfront lot, he said.
College Harbor has been another "can of worms," its problems exacerbated by reductions in Medicare reimbursements for nursing home patients, Ranson said.
The project has been unable to generate enough income to make the interest payments on bonds used to pay past debts and bring it out of bankruptcy. Eckerd has spent $670,000 of its endowment on College Harbor in the last few years, mostly to make bond interest payments. A trustees' committee is investigating options for the future of the project.
- Staff writer Robert Trigaux contributed to this report.
© St. Petersburg Times. All rights reserved.