FINANCE Bloomberg Businessweek August 20, 201827○ Wealthy donors to universities can be picky
about what schools do with the cashDATA: CHRONICLE OF HIGHER EDUCATION; UNIVERSITIES
out koozies and Starbucks gift cards anymore,” says
Al Rabil, CEO of Kayne Anderson Real Estate.
Then there’s the mess. “What we ind is that stu-
dents are a little dirtier, but they’re not destructive,”
says Adam Byrley, chief operatingoicer at devel-
oper Preiss Co. “It’s notAnimal House.”
There are some trends in landlords’ favor.
Undergraduate college enrollment is projected to
grow modestly over the next decade. Many public
universities are looking to tap the private market to
meet housing needs, so they can devote resources
to other priorities. Still, millennials—one of the big-
gest generations in the U.S.—are aging out of their
college years, says Hans Nordby, managing director
at CoStar Portfolio Strategy. “The tide’s going out,”
he says. “There are fewer of these kids every day.”
—Noah Buhayar, Kristy Westgard, and Gillian TanTHE BOTTOM LINE Real estate fund managers are raising
billions of dollars to invest in student housing projects, which seem
to be recession-resistant. But overbuilding could be a problem.In 2015 a gift to the University of Chicago merited a
rock star’s welcome. “What kind of world do you
want?” sang Five for Fighting’s John Ondrasik, his
voice echoing across the century-old campus theater
before a crowd of 1,100. The event feted the Pearson
family, whose foundation—created by Tom Pearson,
an Oklahoma coal magnate—was giving $100 million
for a global center for peacemaking.
Now the Pearson Institute for the Study and
Resolution of Global Conlicts has become a case
study in another sort of conlict—between universi-
ties and wealthy donors. In February the Pearsons’
foundation sued the University of Chicago, claim-
ing it had failed to meet its obligations and demand-
ing the foundation’s money back. The school says
it’s honored the agreement and continues to do so.
Donors among America’s 1 Percent have some-
times fumed over institutions they say subverted
their legacies. A few are hammering out detailed
contracts to replace accords that once were little
more than a handshake. The 60-page agreement
that came with the Pearson gift, disclosed infederal court, includes a preliminary operating
plan and budget, such as $250,000 for a full-time
director the irst year. The center would move
into a 15,000-square-foot space with a “prominent
entrance” that will “meet Class A commercial stan-
dards.” The contract spells out the placement and
appearance of signage and how the center should
be referred to on the director’s stationery. The level
of detail “is a potential warning sign that there are
hundreds of potential land mines to blow up the
deal,” says Scott Nichols, Boston University’s top
fundraising executive.
In their lawsuit, the Pearsons say the university
failed to meet the deadline to appoint a director.
The family also claims the school told them it had
the right to charge the foundation for the oper-
ating expenses of the Harris School of Public Policy
Studies, the center’s home. The university has
denied the claim about operating expenses in its
response to the suit. The center is hosting upcoming
conferences and the university has used the grant
fund appropriately, a spokesman says.
The Pearson foundation has made payments of
$22.9 million, which it wants returned. In a coun-
tersuit, the university says the family breached the
contract by failing to make a scheduled $13 million
payment last year. In a iling, the Pearsons denied
they breached the agreement and said they made
a $1.3 million payment in June 2018. The Pearsons’
lawyers didn’t respond to requests for comment.
The case rivals a handful of other ights in higher
eduction. In 2008, Princeton struck a settlement to
return more than $90 million to the foundation of
the Robertson family, heirs to the A&P supermar-
ket fortune. The dispute was over how the univer-
sity spent funds donated to its public policy school.
Princeton said it had honored the spirit of the gift.
Tom Pearson, who in 2007 stepped down as
general counsel of Alliance Resource Partners LP,
has made a strings-attached gift before. In 2006 he
agreed to donate $1.2 million to his father’s alma
mater, Garrett-Evangelical Theological Seminary
in Evanston, Ill. It would fund scholarships, with
preference to those seeking to be ministers in
Iowa. Pearson said the money should go to DePauw
University if Garrett couldn’t fulill its obligation.
The seminary couldn’t ind enough Iowa-bound
students, so it directed the money to other aspiring
ministers. Pearson sued. After a judge sided with the
seminary, he appealed. The outcome may be sober-
ing for the University of Chicago. The seminary set-
tled and gave Pearson his money back.—Janet LorinThe $100 Million
Gift That Went Sour
THE BOTTOM LINE A large gift to the University of Chicago
came with an extremely detailed agreement. Fundraising experts
say that could have been a red flag.○ Largest private
university gifts in 2015,
by donor
John Paulson
Harvard$400m
Stephen Schwarzman
Yale$150m
Samuel Tak Lee
MIT$118m
Roberta Bufett Elliott
Northwestern$101m
Pearson family
University of Chicago$100m
(Tied with at least five
other gifts)