Date: June 10, 1992
Location: Central New Jersey
Title: How Princeton University Dealt With a Downtown Gift
Author: Mukul Pandya
Subject: Palmer Square was sold to Collins Develoopment, but the university is still the biggest landlord in town
The Princeton area”s biggest landlord is Princeton University. The main campus stretches across more than 400 acres of prime property: the northern boundary borders Nassau Street, Princeton Borough”s main street, and extends as far south as Lake Carnegie. The western edge runs beyond the train station from where the Dinky–a shuttle service run by New Jersey Transit–operates, to University Place and the Springdale golf course, while the eastern side reaches beyond Harrison Street where graduate students live in converted barracks. Beginning with Nassau Hall in 1756, the university has built or bought more than 130 buildings on and around its campus. It also owns several buildings in Princeton Township and Borough for faculty and staff housing, plus Palmer Stadium, Baker Rink, the McCarter Theater and a number of private streets such as Faculty Road and FitzRandolph Road.
Much of this property was bought over the past 250 years. The university, however, also received large amounts of land and buildings as gifts. Real estate director Caroline L. Dinsmore has a fund of war stories about gifts to the university. Among the more unusual is one about a farm in Southeastern Pennsylvania that the school inherited in 1974, when the widow of an alumnus died. The couple”s only son was killed in the Korean War, so the widow decided to leave the farm to her animals. But that was illegal under Pennsylvania law. “The authorities said the farm could not go to horses, so they opened her husband”s will, and found we were the residuary legatees,” says Dinsmore. To respect the widow”s wishes, the university built a shelter on the farm to care for the animals. “An ill dog had to have a pace-maker put in,” recalls Dinsmore.
Most gifts have not been this unusual, but bequeathing land to the alma mater is an old Princeton tradition. Gerald Breese in his book Princeton University Land: 1752-1984 devotes a chapter to the role that alumni played in the growth of the campus. Perhaps the most crucial land donor was Edgar Palmer, for whom Palmer Square, the heart of Princeton”s downtown retail district, was named.
Palmer graduated in 1903 and went on to become the president of New Jersey Zinc. Long before his time as a student, proposals had been made to construct a town square. In 1925, the Architectural Improvement Society of Princeton, a semi-autonomous organization with which Palmer was involved, supported the idea of building a “plaza” in the downtown area. Palmer announced in 1929 that he would build the square, but then the Great Depression struck and delayed his plans. The square, consisting of the Nassau Inn and a small group of shops, was eventually built between 1936 and 1938. After Palmer”s death, his estate gave the Square to the university. In 1966 it acquired an 80.67% interest in the square, and that increased in 1979 to 98%, according to Breese.
Architect J. Robert Hillier, another Princeton graduate, says the university ran the Square for several years in a “very low-key, laid back manner, rather than in an aggressive, money-making way.” But in 1981, the university sold Palmer Square to Collins Development, a Stamford, Conn. real estate development firm run by Arthur Collins, a 1952 Princeton graduate.
Several reasons underlay the decision. The most important, perhaps, was that the Square was in financial doldrums. “Rents in the Square”s residential, office and retail properties were artificially low,” says Jerry Berner, vice president of Palmer Square, who works for Collins. Since the Square was a gift from Palmer”s estate, “there was no pressure on the university to bring rents into the 20th century,” he explains. Another problem was the shops needed to be updated. Retail competition had begun to emerge from regional malls, but “there simply weren”t enough stores in the Square to make it a destination point for shoppers,” Berner adds. The solution, many believed, lay in expanding the Square, which meant adding more rooms to Nassau Inn and developing residential property.
The university started working on the project in the late 1970s, but immediately ran into controversy with decisions like one to tear down a movie theater. The university also got caught in the crossfire of conflicts between merchants and residents. Finally it decided it could do without the aggravation. Says Grant (Dick) Green, then the university”s real estate director: “Princeton University believed it had no business being a real estate landlord on one-third of Princeton”s business district.” K.S. Sweet, the university”s real estate advisor, lined up Collins to buy the Square for $17 million.
Speculation persists in real estate circles about the terms of the sale. Some wonder, for instance, if the university sold only 51% of its interest in the Square, and kept the rest. Others claim that Collins got a very good financial deal because the university carried the mortgage. Still others say the deal involved an option to buy back the Square at some future date.
Both Collins and K.S. Sweet deny such terms. “The transaction was almost entirely for cash,” says Robert Wolfe of K.S. Sweet. “The university did not finance its purchase at all.” Klaus Kretschmann, chief financial officer of Collins Development, adds that “the university sold 100% of the Square without any strings attached. The money was raised from the Bank of New York and other third party lenders, such as Travellers Insurance.” He also denies any arrangement for the university to buy back the Square.
Though Collins bought the Square with great expectations just at the beginning of the go-go 1980s, it has not been a financial success. By the time the company got approvals from the Borough and began work on the Square, the recession had hit, and the newly-built condos on Hulfish Street became a drag on the market. The Bank of New York last year foreclosed on a part of the Square and named the Sammis Company of Parsippany to manage the project.
When the university sold the Square, many saw that as a move away from its continuing as a downtown landlord. Nonetheless, the university still owns several buildings in the downtown area and is buying more. Its properties include, among others, two well-known buildings: 4 Mercer Street, which houses Town Topics, a local newspaper, and 183 Nassau Street, where Thomas Sweet, a popular ice-cream store was located before the building burned in 1990. Last year, the university also bought 22 Chamber Street for $5 million from David Newton, a real estate investor. The Princeton University Investment Company (Princo), which manages the university”s endowment, has its offices in this building. “We started discussions about a lease and that turned into a sale,” Newton says. In addition, the university owns more than 100 houses in Princeton Borough and the Township, many of which are part of a housing program the school runs for its faculty(see box). Another unusual building it owns is at the corner of Nassau Street and Bayard Lane, which was once Edgar Palmer”s residence. Like the Square, this house was a gift from Palmer”s estate, and is now used as the university”s official guest house.
The university”s management of its vast property holdings has sometimes led to disagreements with Princeton”s planners. For example, when the university proposed to develop its Princeton Nurseries property on Route 1, planners wanted the university to study the impact that would have on traffic on Nassau Street. The university did not. Says Margen Penick, former chairperson of the Princeton Regional Planning Board: “It would be a community good if the university focused on keeping Nassau Street free of traffic, but they did not want to talk about it.”
Tax contributions are another thorny issue. Many Princeton citizens believe their property taxes are high because the university pays little in property taxes. Dinsmore, however, counters that while no taxes are paid on educational facilities, “other properties are not tax exempt. We pay taxes on the gym, the tennis court, the rink, most of the green space and all the faculty and staff housing units, and all our private roads.” Dinsmore claims, and Princeton”s tax assessor confirms, that the university is Princeton”s biggest single taxpayer. Neither would give the amount paid last year.
For the future, Princeton University”s real estate policies will be moulded by its needs and the changing market both in downtown Princeton and along Route 1. Like it or not, when it comes to Central New Jersey real estate, Princeton University is like a 500 lb. gorilla in a rowboat. When it moves, the boat rocks. One possible major move would be development at the intersection of Route 1 and Washington Road in West Windsor. The university in 1981 got the approximately 375-acre property re-zoned for educational development, and perhaps during the next 200 years, Princeton could build a business school, a law school or something else there. “We continue to be optimistic about long-term values,” says Princo president Randall Hack. “Now, the market is depressed. In the future, it will improve, and corporations will continue to see this area favorably. There will be no fundamental change in our philosophy.” The entire real estate community is fortunate that the gorilla can take a very long-term view of things. u
BOX: Campus, Sweet Campus
Princeton University owns houses all around Princeton Borough and Township, and runs a mortgage program for its faculty, staff and some administrative employees. Says Caroline Dinsmore, real estate director: “To get good people you have to help. Professors trade salaries for housing help.” The university sells houses to its faculty at the appraised value of the house. This works out to be lower than the market value, because no brokerage payment is involved. When faculty members move, they are obliged to sell the house back to the university. The mortgage program for housing operates within eight miles of the campus. “Brokers like dealing with our people, because we try to pre-qualify them,” says Dinsmore. “That makes things happen faster.”