Why universities became big-time real estate developers.

Reposted from 5/11/18 Slate
By Henry Grabar

This piece is part of the Slate 90, a series that examines the multibillion-dollar nonprofit sector. Read all stories from the Slate 90 here, and view the Slate 90 nonprofit rankings here.

CAMBRIDGE, Massachusetts—You don’t need to drop out of Harvard and move to the West Coast to start a company anymore. You can cross the Charles River to the i-Lab, a 30,000-square-foot incubator for undergraduates that the university founded in 2011. Tech office style prevails in this building behind the vaunted Harvard Business School: open floor, whiteboards, a ping-pong table. In the da Vinci room, students can use machine tools. The mission: “unlocking unrealized value that can have a deep impact on markets, on the world, and on the individuals who walk through these doors.” Or, in plain English, helping undergrads start companies. Across the street is another innovation lab, with a focus on life sciences, open to graduate students and alumni.https://77e04118ea88571c812c195019646dec.safeframe.googlesyndication.com/safeframe/1-0-37/html/container.html

For Harvard (No. 1 in the Slate 90 Education sector), it’s only the start of an effort to commercialize the churn of new ideas that has always characterized coursework, research, and lunchtime chatter at elite universities. The Innovation Lab will soon be joined by an Enterprise Research Campus, “a community for business, investment capital, research and science development” in Allston, where Harvard has amassed 250 acres of land. Originally set to expand the university’s footprint by 10 million square feet—about half the size of downtown Charlotte, North Carolina’s prime office space—the proposed Allston campus was downsized in the wake of the financial crisis. But it is still an ambitious bit of city planning, one that represents the new strategy that urban research universities are now pursuing—expanding into commercial real estate for revenue, status, and influence. Out of the ivory tower; into the cap stack.

Harvard’s Allston plan may be the largest university-led urban development project in the country. But you would be hard-pressed to find a peer institution that has not thrown itself into commercial property development. While the word campus comes from the Latin for “field,” the old-style gated quad, set apart from the town or up on a hill, is decidedly out of fashion. Universities remain nonprofits to be sure, exempt from all manner of taxes. But as the Slate 90list shows, they are very large businesses. And because of this, their economic role in the American city is rapidly evolving. Yale (No. 2 in the Education sector) has spent the past two decades buying strips of storefronts around its New Haven campus, recruiting a Barnes and Noble and an Apple Store to what had once been low-rent rows of local businesses. Yale is now New Haven’s largest commercial landlord.https://77e04118ea88571c812c195019646dec.safeframe.googlesyndication.com/safeframe/1-0-37/html/container.html

This activity is rooted in a deep change that has occurred in the American city in the past 50 years. In a famous 1976 essay, “The City as a Growth Machine,” sociologist Harvey Molotch outlined the coalition of private and public interests that had made economic growth the paramount goal of local government. “Most of those institutions have disappeared,” Wim Wiewel, the president of Lewis & Clark College and the editor of a pair of books on university development, observed in a recent conversation. “The department store is closed, the newspaper is bankrupt, the local bank is no longer local, and the manufacturing is gone.”

What remains is the university. A university is now the largest employer in two-thirds of America’s 100 largest cities (and a handful of states as well). Even in New York City, home to 45 Fortune 500companies and a global capital of finance, media, and fashion, five of the top 10 private employers are anchor institutions like universities and academic medical centers. It can be easy to exaggerate the importance of higher ed as an anchor, an extreme example of which is the argument that Detroit’s bankruptcy might have been avoided by the presence of its own Case Western or Carnegie Mellon. But there’s no question that as cities have hollowed out, universities have enthusiastically seized more economic and urban development responsibilities.

In its most basic form, this mission creep represents the realization, on the part of university brass, that an institution is only as strong as its neighborhood. That’s not a new insight, but it’s one that’s historically been accompanied by fortress-style fortifications at the edges of campus. In 2004, Don Michael Randel, then the president of the University of Chicago, offered a caustic assessment of how the South Side anchor had viewed its role during urban renewal. “Lower the gates. Raise the draw bridges. Dig the moats deeper, maybe spread a little scorched earth around the place. So as to protect yourself from what was seen as a threat on the outside.” Now, the Second City’s flagship university has spread out and assumed greater responsibility for the quality of life in its broader neighborhood. It has become the steward of an adjacent commercial strip, managing projects as diverse as the renovation of a movie theater and the construction of a hotel. It has even offered free rent to pop-up shops.

The University of Pennsylvania (No. 3 in the Education sector) had used slum clearance to evict black families from its neighborhood during urban renewal. But beginning in the 1990s, it undertook a much more comprehensive approach to the blight and depopulation of West Philadelphia. Penn’s West Philadelphia initiatives, the brainchild of then-president Judith Rodin, now stand as an influential case study. Penn helped employees buy houses, expanded campus police patrols, supplemented public services, and even started a new public school. The university also developed scores of nonacademic buildings, often in partnership with commercial developers. The project is widely considered a success, though it also drew accusations of “Penntrification.” University City, the area where Penn focused initially, grew 3 percent to 46,500 residents between 1990 and 2010, but its black population fell by 29 percent. (In West Philadelphia as a whole, population grew by 13 percent and black population fell by 18 percent)

Hank Webber, a top administrator at Washington University in St. Louis, told me that concern about neighborhood quality became widespread among institutions like Wash U, Johns Hopkins, and others. “A number of universities said, ‘Our location is becoming a major competitive disadvantage, and we need to respond by making this a place that our faculty and staff want to come.’ ” But stabilizing local housing markets and designing commercial corridors that would appeal to star faculty and undergraduate parents was just the first step.

Webber, who worked on the University of Chicago’s redevelopment efforts prior to moving to St. Louis, is also the chairman of Cortex Innovation Community, a 501(c)(3) created by Wash U in partnership with other local anchors. It’s a master developer that has concentrated on transforming a post-industrial quadrant of the city by constructing or renovating 1.7 million square feet of space, now home to about 5,000 tech-related jobs. “Where our best and brightest will live and work” is how the St. Louis Business Journal described it. Cortex has powers that the city and state would not have granted a university. It can issue tax abatements, use eminent domain, and control local land use. Tax-increment financing deals make sure that gains from the district’s growth are plowed back into Cortex instead of being distributed citywide.

The interest in promoting corporate partnerships and local business development is already changing the way the academy allocates its resources, spurring a focus on STEM, or science, technology, engineering, and mathematics—fields that are viewed as more closely linked to business formation than, say, foreign language study or history. Research institutions that aren’t in the types of bustling urban neighborhoods that are typically thought to characterize spillover economies (pace Palo Alto, California) have sometimes started urban satellite campuses. For example, Cornell’s (No. 10) new graduate engineering school is not located in bucolic Ithaca, New York, but on Roosevelt Island in New York City.

There was a time when this proposition of a university as a full-fledged municipal actor made even liberal administrators wary. “If society tries to use the university as the vehicle for the current, operational solution of community problems,” Yale president Kingman Brewster said in a 1969 speech, “it may well sacrifice the one institution whose research and teaching is essential to the long range, fundamental solution of these same problems.”https://77e04118ea88571c812c195019646dec.safeframe.googlesyndication.com/safeframe/1-0-37/html/container.html

But city leaders, for the most part, have welcomed the shift. Old power struggles over institutional land use have faded as economic development becomes the academy’s focus. It hasn’t always been clear quite what universities do for local growth, in part because students—especially the best students—tend to be mobile. There are highly ranked universities without adjacent job clusters (Johns Hopkins, No. 4 in the Education sector, for example) and booming cities without world-class universities (like Denver).*

The question for cities might be whether they could be driving a harder bargain with their anchors. In October, a Brookings paper compared the commercial outcomes of urban research universities to their nonurban peers. Big-city universities produced 80 percent more licensing deals, disclosed 123 percent more inventions, received 222 percent more income from licensing, and created 71 percent more startups.

The report encouraged downtown universities to line up their academic specialties with private-sector partners, which can be a cheap (if ethically complicated) way to compensate for declining federal and state funding. “Universities are finding ways not just to supplement that federal funding but replacing it, and that means developing kinds of industry partnerships,” explained Sharon Haar, the chairwoman of the architecture program at the University of Michigan and author of The City as Campus. In Ann Arbor, Ford has moved dozens of employees onto campus, where they work side by side with Michigan faculty and students on driverless vehicle technology.

It’s not just about the money, though. Above all, universities are competing for talent. And just as students are increasingly drawn to entrepreneurship even as undergrads, faculty often want to know that they can be in a place where they can bring a laboratory breakthrough to market. Equally important, in the race to lure star researchers who can remake entire departments, is the rise of dual-earner households. People don’t want to relocate to a place that will require their partners to sacrifice their careers.

“Ultimately, institutions are motivated by self-interest,” said Wiewel, who in his previous job at Portland State University helped establish the city’s Cortex-style Innovation Quadrant. “They wouldn’t do it if it didn’t serve their own purposes—generate licensing income, be seen as an active viable place. No president can afford to say, ‘Oh, my goal is to be the economic bulwark of my city.’ They do it because it’s good for the university.” 

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