Commercial Real Estate News / Development / Beyond the Classroom: Reimagining Educational Facilities for Profit

Beyond the Classroom: Reimagining Educational Facilities for Profit

Published: 03-19-24 Category: Development

Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.

Many of us have passed an empty, abandoned school that has become vacant in the last few years.

According to national statistics, over 1,000 schools closed every year from 2010 to 2022.
Declining enrollment and/or budget restraints have seen dozens of schools close in cities like Chicago, Detroit, Philadelphia and Washington D.C.
Rural areas have experienced school closures due to declining populations and lack of funding. Smaller schools have been more frequently impacted.
During the recessionary years of 2008-09, some schools were closed due to district budget cuts.

The costs of bringing older school buildings up to code or renovating them to meet Americans with Disabilities Act requirements may be too expensive.

As student numbers continue to decline in certain areas of the country, we may see even more school buildings, including those with historical value, become vacant.

However, many investors are reimagining the roles these buildings can play, especially roles that improve the lifestyles of the community they inhabit.

Another incentive: the lower, bargain prices many school districts are willing to accept, especially if they are maintaining the building by use of minimal heating and similar services.

This article introduces investors and entrepreneurs to these potential opportunities, together with examples of some successfully reimagined educational facilities.

To begin, here is an introduction to the types of schools that may be available.

An Overview of Education-Related Real Estate

Although most school buildings, which are usually classified as commercial real estate (CRE), will offer a mixture of classrooms and some larger areas, there will be a few exceptions.

Here are the types you may see during your initial search.

Elementary and middle (also known as junior high) schools that are aging or have been affected by significant declines in enrollment. This may be due to a general loss of population caused by the COVID pandemic's effect on families, especially relocation.
High schools were home to the area's former elementary and middle school pupils, and are affected by the same challenges. These may offer additional real estate to investors in the form of vacant land, especially if the high school actively promoted sports teams.
Alternative schools are often smaller than public school facilities, with no larger areas like cafeterias or gymnasiums. These close when local budgets are cut, or when the curriculum becomes outmoded or less popular.
Older schools are often closed because of outmoded utilities and non-compliance with modern safety standards. While renovation costs can be high, the National Park Service offers a comprehensive guide to restoring historic buildings. Federal and state tax incentives may also be available.

Before investors begin their search for a facility, it's time to determine which types of repurposing will help guarantee the project's success.

This is why a study of the area's current real estate shortages is mandatory.

Identifying and Analyzing Local Needs

While some areas are closing schools because of departing families, others close because of changing demographics. While the population may not have decreased, their needs may have changed.

For example:

Is the area short of affordable housing or daycare facilities?
Is a new business bringing more younger professionals into an area with limited rental properties or multifamily CRE?
Has the area become more popular with tourists and weekend visitors?
Is there a demand for a new trade or technical school?
What about retirees searching for an assisted living or retirement community?

While many reimagined school buildings are addressing these shortages, an investor's options are almost unlimited.

For example, a former trade school in Philadelphia, built in 1936 by the Public Works Administration, is now populated by over 200 artisans, including photographers, florists, and painters.

After you've prepared a business plan that identifies specific housing needs within a neighborhood, you'll be ready to find the ideal facility.

While many are listed for sale online described as Specialty CRE, you may also find details about purchasing from a city's school board or department of education.

While many vacant schools are offered at bargain prices, the need for extensive renovations may offset this. Here are strategies for staying within budget.

Locating an Educational Facility for Transformation

While some vacant school buildings will be listed for sale within the CRE realm, the facility you've chosen may not be a simple purchase. Here are some important things to remember before closing the deal.

Prepare a detailed estimate of renovation costs. Ideally, a CRE appraiser will prepare a detailed report of the property's current condition. However, if you're buying an auctioned property, you may be limited to exterior inspections.

You may want to bring in a CRE broker with experience in the area itself or with other similar projects. This can be especially helpful during price negotiations before and after a building is appraised.

When considering the purchase of a historic building, research the tax credits that may be available to you and any co-investors through the Federal Historic Preservation Tax Incentives program.

If possible, meet with local press and media outlets to encourage support for your renovation project. Identifying yourself as responsible for saving a beloved building helps guarantee its success after completion. Think of it as free marketing.

Before you make the decision to renovate an abandoned school building, let's look at two projects and the steps required to make them profitable.

Bowtie High Luxury Apartments, Homestead, Pennsylvania

Built in 1929, Bishop Boyle High School closed in 1987. It temporarily housed community groups before closing in 2001. Three investment partners negotiated a purchase price of $100,000 before beginning two years of renovations.

Today, Bow Tie Apartments' tenants enjoy historical surroundings and shared amenities such as a fully equipped gym. The investors began earning passive income in less than a year and moved on to a second, similar project.

Kennedy School Hotel, Portland, Oregon

One of two school-to-hotel conversions managed by Oregon's Brian and Mike McMenamin, the Kennedy School opened in 1915 as part of the Portland Public Schools.

After closing in 1975, the elementary school building was purchased by the McMenamin brothers for $600,000.

After a two-year conversion and renovation project, the Kennedy School Hotel opened in 1997. It features 57 rooms, a brewery, several bars and restaurants, and even a movie theater.

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