Real Estate as a Liberal Art

By Randy Noles
Jeffery G. Eisenbarth, vice president for business and finance at Rollins College, enjoys his morning coffee outside the SunTrust Plaza Starbucks on Park Avenue.
Jeffery G. Eisenbarth, vice president for business and finance at Rollins College, enjoys his morning coffee outside the SunTrust Plaza Starbucks on Park Avenue.

LEAD PHOTOGRAPH BY RAFAEL TONGOL

Relationships between colleges and college towns are often multilayered and complex, encompassing both cooperation and condescension; harmony and hostility.

Some colleges operate in isolation from the communities surrounding them, behaving as though the only commonality is geography.

“But sir, they’re not good enough,” whined an obnoxious jock to the president of Indiana University in the film Breaking Away (1979). “They’re cutters.”

The university had invited locals, derisively called “cutters” because many had worked in local quarries, to participate in the annual Indiana University Little 500 bicycle race.

You’ve seen the movie; you know the snooty collegians get their comeuppance.

Rollins College and the City of Winter Park have had their disagreements over the years. But few towns and colleges have histories so intertwined, or interests so aligned.

Indeed, the same cadre of enlightened New Englanders who pioneered the city also rallied its residents to donate land and money for the college, which was founded by the Florida Congregational Association.

In the years since 1885, the goals of the city and the goals of the college have, for the most part, been in concert.

“We started together and we’re in this together,” says Randy Knight, city manager. “Working together helps keep our city strong, thriving and vibrant — for those who already live here and those who may someday want to call Winter Park home.”

Patrick Chapin, president and chief executive officer of the Winter Park Chamber of Commerce, says the college is a boon to business — especially in the downtown shopping and dining district. “When I think about Park Avenue and Rollins College, I can’t imagine one without the other,” he says.

For Rollins, its location in the heart of a lively and affluent city is considered a key selling point for applicants and their parents. For Winter Park, the presence of a prestigious liberal arts institution is confirmation of its stature as the cultural and intellectual mecca of Central Florida.

From time to time, though, some locals complain about the college’s extracurricular real estate activity. That wariness has increased in recent years, as Rollins has aggressively acquired and redeveloped property outside its compact 70-acre campus.

“The campus is landlocked and lake-locked,” says Allan E. Keen, chief executive officer of The Keewin Real Property Co. Keen, who helped to develop a strategic plan for such ventures, is the incoming chairman of the college’s board of trustees and serves on its real estate task force.

“When we buy property, it isn’t to sell,” adds Keen, who has been a trustee since 1987. “Rollins has been here for 130 years, so we hope to keep what we buy basically forever. Obviously, that means we look further ahead than most property buyers would.”

Eventually, Keen says, much of the real estate Rollins absorbs may be used for campus expansion. But “eventually,” in this context, may mean generations from now. In the meantime, the college has been spectacularly successful in redeveloping nearby property and using it to generate income.

Because Rollins pays cash for its purchases and doesn’t finance any debt, its real estate activities are expected this year to generate a profit of $2.6 million on income of $4.5 million. That’s an astronomical 58 percent operating margin.

And those numbers don’t include the Alfond Inn, a wildly popular boutique hotel on East New England Avenue. The Alfond, opened by the college in 2013, is owned by a separate LLC for accounting purposes. That’s because its profits, instead of benefitting the college directly, endow a scholarship fund.

Using a cost basis — which is the acquisition price adjusted for such factors as depreciation and improvements — the return on the college’s real estate portfolio, this time including the hotel, has averaged more than 15 percent annually since 1999.

Comparing the cost basis of college-owned property to its current market value is basically an indicator of appreciation. In light of the economic crash of 2007, during which real estate values collapsed and remained depressed for years, the return Rollins has enjoyed becomes even more impressive.

That calamitous bursting bubble, in fact, created opportunities for the college to pick up some properties on the cheap.

Keen, who has been involved in real estate transactions valued at more than $450 million since 1978, says that an 8 or 9 percent annual return is considered good for a private company that owns and manages commercial property.

Sure, he adds, Rollins could have invested money in stocks instead of property. But the Standard & Poors 500 index has averaged a comparatively measly 9.85 percent return over the past 20 years. “Our return was 12 percent even before the Alfond,” notes Keen.

So, at a time when many institutions of higher learning are scrambling to find non-tuition revenue sources, this small liberal-arts college tucked along the shores of Lake Virginia seems to have hit the jackpot. Its real estate assets are not only gaining equity but putting money in the bank.

“The earnings on our commercial real estate effectively function like our endowment,” says President Grant H. Cornwell. “This strategy enables us to keep the escalation of tuition as disciplined as possible.”

But has this eye-popping success come at the expense of the city? It’s difficult to see how.

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Jeffrey G. Eisenbarth, the college’s vice president for business and finance and treasurer, joking refers to Rollins as “the 800-pound gorilla sitting at the end of Park Avenue South.”

Eisenbarth, who joined the college in 2008, says he constantly fights the perception that his employer is a land-hungry, cash-rich behemoth bent on snaring every property possible and removing it from the tax rolls.

“When people say, ‘Rollins isn’t paying any taxes,’ it just isn’t true,” says Eisenbarth. “It’s an urban legend.”

The fact is, Rollins rarely changes the taxable status of its real estate purchases. And its commercial properties are taxed no differently than those owned by for-profit investors.

Of 60 properties bought by the college since 1993, 45 — or 75 percent — have remained on the tax rolls, Eisenbarth points out. Consequently the college’s property tax bill has soared — particularly since the opening of the Alfond.

With the hotel added to the tax rolls, Rollins is now the city’s second-largest taxpayer, behind only Winter Park Village, a sprawling commercial development on U.S. Highway 17-92.

Here’s how it breaks down as of 2015:

All properties owned by Rollins, whatever their use, are assessed at a grand total of $164,436,948. That’s 3.1 percent of the combined assessed value of every property in Winter Park.

Most college-owned properties — including the main campus — are tax-exempt. But 28 percent of the assessed value — or $46,343,184 — is related to properties categorized as non-exempt.

Consequently, the college’s 2015 property tax bill is estimated to be $850,223 — up nearly 9 percent from 2014. The jump is due in large part to the increased valuation of the Alfond, which paid a $261,116 property tax bill last year and expects that obligation to soar 25 percent — to $326,831 — this year.

Still, despite the enviable numbers Rollins has been able to achieve — and despite the financial benefit to the institution and the city — should a college be in the real estate business at all?

There can be a significant downside, as the economic crash demonstrated. And a college that buys and develops property risks being cast as a competitor instead of a partner by high-powered locals, whose ongoing good will is crucial.

“I wouldn’t recommend our approach to other small colleges unless they had opportunities as proximate as we do, and had the trustees and professional staff as sophisticated and experienced as we do,” says Cornwell.

“What colleges do best is be colleges,” he adds. “It’s risky to wander off into other enterprises. It works so well at Rollins because of our unique situation.”

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Rollins first entered the commercial real estate arena in a major way when it developed SunTrust Plaza and an accompanying parking garage on the 400 block of Park Avenue South.

The college already owned the 2.5-acre site, upon which sat a three-story brick building — dating from 1916 — which once housed the Winter Park Grade School, later Park Avenue Elementary.

Rollins, which bought the property in 1961, used the building for classrooms and offices. But by the late 1980s, it had fallen into disrepair and had become structurally unsafe.

The college announced plans to demolish the building and redevelop the site, outraging preservationists, some business owners and many longtime residents who had attended the school and had a sentimental attachment to it.

Although the structure was razed, substantial angst had been generated. The site remained vacant, like a missing front tooth in an otherwise perfect smile, for the better part of a decade.

George H. Herbst, Eisenbarth’s predecessor, was eventually tasked by President Rita Bornstein and the college trustees with selling the community on a development plan.

“Our greatest challenge proved to be negotiating the politically sensitive process of securing city approvals,” Bornstein told a reporter after the project was complete. “Nothing prepared us for the complexities and intense scrutiny of a real estate venture.”

Herbst says the college considered simply selling the land and letting an outside developer take the heat. But, he adds, “the more we looked at it, the more self-development made sense.”

Frank Herring, then managing partner for Dallas-based developer Trammell Crow Co., was hired as project manager. Now president of his own company, The Herring Group, he continues to advise the college on its commercial real estate ventures and serves on the real estate task force with Keen and others.

“I guess you could say I was the arms and legs,” says Herring, who’s also a trustee for the Hamilton Holt School, the college’s evening program. “I ran the day to day operation of getting the project done.”

But there were plenty of feelings to be soothed and reassurances to be made before construction actually got underway. Herring, who describes himself as “low profile,” was a developer, not a public relations practitioner. It was up to the college to reassure suspicious locals.

“I spoke to every group around town,” Herbst recalls. “It was before PowerPoint, so I lugged around all these renderings. People were afraid we were going to build a skyscraper. They were afraid that whatever we built wasn’t going to be on the tax rolls. There was a lot of doubt.”

SunTrust Plaza, after considerable discussion and debate, was opened in 1999 as a three-story, 82,000-square-foot complex abutting an 850-space parking garage. Tenants include Gap, Starbucks, Restoration Hardware and Merrill Lynch, as well as its namesake bank.

At 40 feet tall, the structure exceeds the city’s height limit by 10 feet. But with the third story partially recessed, it doesn’t feel out of scale with the rest of Park Avenue. And it provides the city with $248,890 in annual property tax revenue.

Subsequently, Rollins began buying various commercial properties along the south side of West Fairbanks Avenue, from the campus entrance to the railroad tracks.

In 2012, it redeveloped Winter Park Plaza — a strip center anchored by Ethos, a vegetarian restaurant — and is now landlord to an array of businesses, from a waxing salon to a vitamin emporium.

The center’s original developers had defaulted on a $7 million note, and the college snapped it up for $2.8 million via an Internet auction. It’s expected to generate $43,658 in property taxes this year.

Other college-owned commercial properties lining Fairbanks bring in considerably less, but all contribute to city coffers proportionally, based on their assessments.

This summer, Rollins jumped across Fairbanks to buy its only property on the north side of the street — the building at 315 W. Fairbanks that housed the law offices of the late Russell Troutman. The college paid $2.65 million for the building and an adjacent parking lot.

The Holt School’s offices have temporarily moved there from the Pioneer Building, located in the college’s Samuel B. Lawrence Center. The Lawrence Center is a city block in downtown Winter Park that also encompasses a 40,000-square-foot building occupied by PNC Bank and other tenants.

The Pioneer Building sustained water damage over the summer and is undergoing repairs. Eventually, says Eisenbarth, the Holt School will probably move back and the Troutman building will be offered for lease.

A college-owned property that will soon change uses is 200 W. Fairbanks, until recently home of Frank & Stein’s, a bar and restaurant. Eisenbarth says he hopes the site will be used for a campus and community bookstore. It was announced earlier this year that the on-campus bookstore would be converted into an event center.

It’s unclear whether or not the property would become tax exempt if it’s used for a bookstore — especially if an outside company runs the operation and pays the college rent.

In 2007, Rollins began a townhome-buying spree, corralling nine units on Orchard Avenue near Mead Botannical Garden. The college uses these and other scattered townhomes for faculty housing. New hires pay market rate for rent, and may remain for a maximum of three years.

The townhomes remain on the tax rolls because they’re considered incidental to the college’s core educational mission. Faculty housing is expected to generate $65,872 in property taxes this year.

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But the biggest development project ever undertaken by the college was the Alfond. The idea to build a hotel emerged from a freewheeling 2008 trustee brainstorming session, Eisenbarth says.

Although Rollins was nationally renowned for its picture-postcard campus, there was a vexing problem. Visitors, including prospective students and their parents, had no place on campus — or even adjacent to it — to spend the night.

In addition, following on-campus weddings for alumni, there was no convenient venue to gather for receptions. There was also a shortage of meeting and conference space for the college and the community.

The solution seemed obvious.

“I was on the job two months and got the job of hotel developer,” recalls Eisenbarth, who had been hired from a comparable post at Willamette University in Salem, Oregon. “I went back to the office and looked at the job description. I didn’t see ‘hotel developer’ in there anywhere. I saw ‘other duties as assigned.’”

The trustees formed an Alfond task force, and asked Keen to work with Eisenbarth and formulate a plan.

The Alfond family — longtime college benefactors — had already committed to putting up $12.5 million, with the condition that profits be used to provide scholarships and endow a scholarship fund. But $12.5 million wasn’t nearly enough to get the job done.

Instead of partnering with a developer, though, Eisenbarth and Keen recommended that the college finance the remainder with a $20 million loan from its reserves, to be repaid over 25 years at 4.5 percent interest.

In 2009, the college spent $9.9 million for a 3.3-acre parcel at the corner of New England and Interlachen avenues, just blocks from the campus.

On the site once stood the storied Langford Hotel, a local landmark that closed in 2000 and was demolished in 2003. With Herring again serving as project manager, ground was broken for the new hotel in November 2011.

Almost immediately upon its opening, the 112-room facility began earning rave reviews. Most recently, in Conde Nast Traveler’s annual Readers’ Choice Awards, it was rated No. 1 in Florida, No. 7 in the U.S. and No. 63 in the world. It also holds a AAA Four-Diamond rating.

But if you’re an accountant, you’ll be more impressed by the numbers. In 2015, the Alfond is expected to gross more than $14 million and earn an operating profit of $4.7 million.

From the net, the college will be repaid $1.2 million. The remainder will bolster the Alfond Scholars, a program established by the hotel’s namesake family. This agreement will continue for 25 years or until the endowment reaches $50 million — whichever comes first.

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What’s next for Rollins? On the wall of Eisenbarth’s office hangs an aerial photograph of Winter Park showing properties owned by the college and properties it would like to acquire, each outlined in different colors.

The wish list is proprietary information, Eisenbarth says. But it doesn’t take a PhD to figure out that parcels already buffeted by college-owned property, especially along Fairbanks, would be prime candidates for acquisition.

Certainly it’s no secret that Rollins would be interested in the two-acres at 460 E. New England Ave. where the Winter Park Public Library now sits. It’s ideally situated next door to the Alfond and across the street from the campus.

The property could become available if voters approve a $30 million bond issue in March to fund construction of a new combined library and civic center at the northwest corner of Martin Luther King Jr. Park, where the current Rachel D. Murrah Civic Center is now located.

Some on social media are already buzzing that Rollins somehow manipulated the volunteer citizens’ committee that studied the issue and recommended the move — an accusation that committee members vehemently deny.

Such gossip baffles Eisenbarth, who says that if the referendum passes, and if the city decides to sell, and if the price is right — which is a lot of ifs — the college could be interested in buying the property and perhaps retrofitting the existing building as a permanent home for the Holt School.

“We can’t tell the city what to do,” Eisenbarth says. “They tell us what to do.”

It’s true that Rollins doesn’t always get its way. In October, it pulled from consideration a petition to rezone property at 315 Holt Ave. abutting the College Quarter historic district.

The college had asked that the site, which is now occupied by a small circa-1930s apartment complex, be rezoned from residential to PQP (public, quasi-public) so it could build a 5,000-square-foot child-care development center.

College Quarter residents didn’t particularly object to a child-care development center. But some worried that a zoning change to accommodate it would set a disagreeable precedent.

Because churches and other nonprofits may operate child-care centers under R2 zoning, the request will likely be resubmitted once the city clarifies that a facility of the kind proposed by the college would likewise be permissible.

Looking further into the future, Eisenbarth points to the Lawrence Center as a site that has redevelopment potential. The center, bounded by New England Avenue to the north, Knowles Avenue to the west, Interlachen Avenue to the east, and Lyman Avenue to the south, is tucked between the Alfond and SunTrust Center.

Just what might be built there — and when — isn’t known. But it’s certainly a first-rate location, just a block off Park Avenue. (Samuel B. Lawrence, by the way, was the father of Barbara Lawrence Alfond. He made a fortune as an original investor in Budget Rent a Car and died in 2011.)

Keen says the college isn’t looking to buy more property unless it’s strategically placed near the campus or offers proximity to other college-owned assets. “We try to be a good neighbor.” he notes. “That’s why nobody builds anything prettier or better than we do.”

Nobody doubts that Rollins develops quality projects. What’s more, the college appears to be unique among its peers in the scope of its real estate operation. “I don’t know of any colleges who do as much as we do,” says Eisenbarth. “Maybe Harvard.”

Not that others aren’t at least peripherally involved in real estate.

Comparably sized colleges, particularly those in unremarkable towns or even rural areas, are increasingly trying to promote mixed-use commercial and residential development around their campuses to help lure students and faculty.

But such colleges rarely have the expertise — or the cash — to do it themselves. So they take on development partners who assume the risks (and reap the rewards).

However, creating an appealing college-town atmosphere around Rollins has never been necessary. It’s hard to improve on Winter Park just the way it is — and has been for generations.

So why is Rollins in the development business? Because it can be, for one reason, blessed as it is with cash, expertise and an enviable location. But it’s also positioning itself for growth — perhaps decades from now — and in the meantime generating healthy returns in both asset value and cold, hard cash.

“It’s all for the students, current and future,” says Eisenbarth. “So it’s all good.”

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