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September 28, 2016

Alvarez & Marsal (A&M) - Real Estate Case Study: Howard University
A&M is helping Howard University transform its aging facilities and remain competitive with high-caliber universities nationally, through a consolidation of academic and residential activity at Howard’s core campus and an aggressive monetization and redevelopment of edge and non-core real estate assets located outside the campus edge. 


Client Mandate
As part of a broader transformation plan, Howard is pursuing an aggressive plan for optimizing the value of underutilized real estate and animating the campus through a variety of partnerships with private developers.  The primary objectives of the real estate strategy are to eliminate soaring deferred maintenance costs, creating new revenue streams to fund mission critical activities, leveraging assets off-balance sheet to increase debt capacity, enhance Howard University’s brand in the local real estate market, capitalize on market opportunities, and minimize time to market.

A&M Approach
A&M stood-up a project management office (PMO) reporting directly to Howard’s senior executive for Real Estate Development and Capital Asset Management (REDCAM) to develop Howard’s real estate and monetization strategy from the bottom up.  A&M assisted Howard in stratifying its portfolio into three broad categories: Core – main buildings responsible for supporting core mission and brand projection; Edge – vacant or improved, directly adjacent to Core, presenting opportunities for mission-related development and revenue generation; and Non-Core – property that is not adjacent to Core and represents no opportunities for mission enhancement. 

A&M prioritized the Edge and Non-Core properties into near-term modernization opportunities based market attractiveness, lack of encumbrances, minimal University investment, and deferred maintenance.  A&M then performed highest and best use valuations of the seven highest priority assets, which included multi-family, retail, office, and hotel totaling more than $200 million in potential value to Howard.  Howard’s Board of Trustees approved the real estate strategy and A&M has begun monetizing assets through competitive P3 procurements, as well as entertaining sole-source negotiations.

A&M monetized Howard’s first Non-Core asset, Meridian Hill Hall, which generated $22 million in upfront proceeds under a long-term, unsubordinated ground lease. A&M is in final negotiations with Corvias Campus Living for the privatization of three residents halls 2,273 beds, which represents more than 40 percent of the University’s on-campus housing stock. This privatization effort will generate nearly $150 million in off-balance sheet, non-recourse debt to invest $70 million in modernizing the facilities, $40 million to defease existing debt, and provide an upfront payment to Howard. In addition, Howard will receive 100 percent of project cash flow after debt service. A&M is supporting Howard in three other P3 transactions for Edge properties estimated to generate more than $150 million in value.