FiDi School Seeks to Suspend Debt Payments While It Sells Real Estate
A college based in the Financial District is facing severe financial distress, amid a wave of similar developments at other Lower Manhattan schools. The Metropolitan College of New York (MCNY), which has been based at 60 West Street since 2016, is asking that its bondholders accept a moratorium on debt repayment for nearly five years, while it attempts to sell part (or all) of its campus in the building located at the corner of Rector and West Streets, which is better known as 40 Rector Street.
These troubles surround a 2014 offering of $67.4 million in tax-free bonds, issued through the Build NYC Resource Corporation, an arm of the City’s Economic Development Corporation that floats debt on behalf of non-profits seeking to acquire New York real estate. These funds were used to purchase the sixth, seventh, and eighth floors of 40 Rector Street, as well the ground-floor entrance space, facing West Street.
Opening in Spring 2016, MCNY joined other public-service organizations that planted their flags at 40 Rector. Its neighbors in the building would eventually include the China Institute, Big Brothers Big Sisters, the National Association for the Advancement of Colored People, and the Urban Justice Center. They were all steered to the Financial District building by a provision in the tax code that allows nonprofit organizations to avoid paying real estate tax on office space they have purchased, but would be indirectly liable for in rented space. (Forty Rector is a commercial condominium, where offices are owned by their occupants, rather than rented.)
Of the $67 million that MCNY borrowed in 2014, less than 10 percent has been repaid and more than $62 million is still outstanding. This amount carries annual interest of more than $4 million, the next installment of which is due on November 1.
In an August 23 conference call with bondholders, MCNY president Dr. Joanne Passaro said, “the college is experiencing declining enrollment that is not recovering as quickly as we expected from the pandemic,” adding that the school “has more space than it needs, taking into account our current and projected enrollment and the trend toward more online instruction for adult learners.”
For this reason, she said, MCNY “intends to sell two floors of our Manhattan campus and consolidate operations on one floor, plus the first-floor space.” Dr. Passaro continued that the school has hired a real estate consultant to prepare two appraisals: “one just for floors six and seven, and the other for the entire campus.” She noted that “although our preference is to sell only two floors, we would consider selling our entire Manhattan campus and paying all of the net proceeds to bondholders in full satisfaction of the bonds.”
“The essence of our proposal is that MCNY needs time,” she said. “To allow us the time we need, we are proposing that bondholders waive the financial covenants and defer all debt service payments until May, 2028. Importantly, this long-term solution will also give comfort to our regulators that the college has sufficient runway to regain its financial footing.”
This appears to have been a reference to the Middle States Commission on Higher Education (MSCHE), which governs accreditation of colleges and universities in New York, New Jersey, Pennsylvania, Delaware, and Maryland. One consideration that can lead the MSCHE to withdraw its approval from a school is financial distress sufficiently acute to cast doubt on the institution’s ability to continue operations. While such a loss of accreditation, by itself, does not require a school to shut down, it can effectively be a death knell for a college or university, because it means that students are no longer eligible for federally funded student loans, and other government financial aid. (This is especially harmful at any school already suffering from declining enrollment and cash-flow depletion.)
“We propose that all of the deferred debt service will be due and payable on May 1, 2028,” Dr. Passaro said. “But we do anticipate that this may be revisited after we sell the real estate and know the amount of the sale proceeds available to the bond holders.”
Anthony J. Cammarano, MCNY’s interim chief financial officer, said that without agreement from bondholders to suspend debt service and without a sale of all or part of the school’s property at 40 Rector, “we project in the low scenario that our cash will be depleted by early 2025, and in the high scenario, that we make it through 2025 and into 2026.”
Just days before the August 23 conference call, the Fitch bond rating agency downgraded MCNY’s debt to “junk” status, noting, “Fitch expects that the college’s limited financial resources and rapid expense growth in pursuit of uncertain revenue streams may fully erode the college’s already thin financial cushion by year end.”
The agency also sounded this cautionary note: “the sale of the Manhattan property may result in sale proceeds, together with internal resources, below an amount necessary to fully redeem bonds.”
The crisis at MCNY comes after the recent demise of another FiDi college, Alliance University (previously known as Nyack College, until rebranding itself in 2022). That school, based at Two Washington Street (near Battery Place) since 2018, after decamping from the Rockland County campus that had been its home since the 1890s, closed permanently over the summer, after declining enrollment and a cash crunch led the MSCHE to withdraw its accreditation.
A similar drama is approaching its denouement at a third local school, King’s College, located at 56 Broadway (near Exchange Place). In May, the MSCHE withdrew its accreditation from the school, which announced in July that all classes had been cancelled for the fall semester. The MSCHE website now describes the status of King’s College as “pending closure,” and says “the Commission will consider the institution closed and no longer operational with students actively enrolled as of the fall term of 2023.”