Fall 2018 Financial Update: Presidential House and Moody’s Rating
Nine days before President Ari Berman assumed office in July 2017, Yeshiva University purchased a two-story house in Teaneck, New Jersey for $1.8 million to function as the President’s home. New Jersey property records indicate that YU paid for the property upfront, without mortgaging the 9,226 square foot lot and its 4,784 square foot house.
Since purchasing the 2006-built property, the University has been billed for approximately $53,400 in property taxes and could continue to pay upwards of $42,000 in property taxes annually. Because of its 501(c)(3) status as a tax-exempt not-for-profit organization, however, the University is eligible to apply for a full property tax exemption that, if granted, would apply to future quarters.
The University similarly purchased a house for then-President Richard Joel just before he assumed the presidency in 2003. New York property records show that YU bought the Riverdale house for over $2.2 million and either paid or was exempted from paying property taxes that have since totaled at least $1.5 million. Unlike YU’s unmortgaged ownership of President Berman’s house, subsequent records show that the University mortgaged Joel’s house for $2.5 million in 2004 and refinanced the mortgage in 2009 and 2014.
A monetary incentive for universities to purchase rather than rent these houses for their presidents is the selective applicability of the not-for-profit property tax exemption to property owners, but not to tenants.
Purchasing homes for university presidents is common practice for American public and private universities. According to The Chronicle of Higher Education, “Many presidents of large universities are given houses in which to live and to play host to fund raisers and other events.” The Chronicle’s annual national survey of presidential pay and residences at 118 public universities found that amongst houses provided to their presidents, over 36 are valued at $500,000 or more and 20 are valued at over $1 million.
For most university presidents, according to the Wall Street Journal, the value of “free accommodations is not taxed as income.” As a private university, YU reports the “estimated annual value of this benefit” to the Internal Revenue Service annually in its Form 990 to ensure its compliance with federal limits on not-for-profit employee compensation, according to The Chronicle.
The June 2017 purchase of President Berman’s house followed YU’s April 2017 refinancing of five campus properties in Manhattan using a $140 million mortgage from two debt fund management companies. The sale and leaseback transaction placed Washington Heights’ Wilf Campus buildings of Belfer Hall and Pollack and Gottesman Library, and Murray Hill’s Beren Campus buildings of 215, 245 and 253 Lexington Ave, into a wholly University owned limited liability company called Y Properties Holdings LLC through which YU continues to lease back the five properties. The $140 million mortgage was used to redeem $175 in taxable bonds held by UMB Bank issued in 2014, whose remaining principal balance owing on the bonds was approximately $125 million.
“The University continues to evaluate ways to improve its operations,” Vice President for Legal Affairs, Secretary and General Counsel Avi Lauer told The Observer in May 2017. “In this case, we were able to refinance our long term debt at a more favorable interest rate, which will help the University reduce its annual debt costs.”
Though listings indicate that the Teaneck property is the most expensive one on its block by approximately $800,000, a source with knowledge of the transaction details confirmed that YU paid market value for the property. According to differing estimates by online real estate websites Zillow and Realtor, the average listing price for homes on the house’s block ranges between $667,200 and $708,900. These estimates place the house at between 254% and 270% of the average listing price for its block.
The realtor involved in the transaction for President Berman’s home, Nina Eizikovitz of Links Residential, explained that the discrepancy between the house’s sale price and average block listing prices is indeed “normal” for an area in which “there are many houses which property owners custom built for themselves.” Because the heightened values of custom built homes are not reflected in the property records from which average property listing values are calculated, these averages do not offer a comprehensive picture of nearby property values, nor a reliable assessment of the presidential house’s market value. Eizikovitz also said that there are many homes in the area valued on par with the President’s house.
In light of the University’s ongoing operating deficits, the source of the liquidity with which the University paid upfront remains speculative. The Commentator could not determine whether the President’s contract provides that he reimburse the University for the property taxes filed by YU’s Tax Compliance Department in the University’s name. It is also not clear what role the Board of Trustees, which presided over the President’s contract, played in securing upfront funding for the property.
YU’s fiscal 2017 statements of Joel’s final and fourteenth year as president acknowledge that YU has sustained significant and recurring operating losses in recent years, meaning that each year it is spending more on operational costs than its cash and cash equivalents can cover. The financial statements acknowledge that these incurred deficits could be relieved by YU’s increased use of liquid assets to “provide additional operating support.” The University grew its unrestricted liquidity in fiscal 2017 through several transactions, including the completed transfer of assets belonging to Albert Einstein College of Medicine to a not-for-profit corporation run by Montefiore Medicine for $148,000.
Since President Berman assumed office on July 1, 2017 — incidentally the first day of YU’s fiscal 2018 — the University’s finances have received some positive external attention. In an April 2018 credit rating of YU’s outstanding revenue bonds, Moody’s Investors Service revised its rating outlook of YU from stable to positive for the first time since the bonds’ 2009 and 2011 issuances, and affirmed the B3 status which the bonds have maintained since 2014. According to Moody’s, a B3 rating indicates that the long-term bonds are non-investment grade and “speculative and subject to high credit risk.”
The Moody’s report cited “improved operating performance,” projected “continued moderation of operating losses” and “strengthened financial management and a new president focused on enhancing the university’s external profile and reputation” as factors that could amp up prospects of “renewed donor confidence and gifts” and improved financial stability. The report cited YU’s 2017 monetization of numerous assets and the resultant growth of its unrestricted liquidity as “a stabilizing factor during a highly transitional period.” Though the rating action impacts $159 million of outstanding rated debt, the positive rating outlook predicts that YU’s new senior leadership will succeed in executing “important structural changes that will create a stable operating profile over the long term.”
The Office of Communications and Public Affairs told The Commentator that “Yeshiva University offers housing for our president, as many universities do. We do not comment on specific employment matters.”
The presidential home has long served as both a private and communal space for presidential use. In a January 2008 interview with the Riverdale Press, Joel identified his “Arlington Avenue backyard” as “his source of tranquility.” He conveyed that “the relentlessness of the public eye can be overbearing,” and that at times he and his wife need the seclusion “to be able to be non-people.” More publicly, Joel’s house was used as a set for the 2015 Maccabeats music video for “Latke Recipe” which garnered two million YouTube views, and as the venue for a YC Honors Program dinner in the program’s early days at which students presented their Honors theses.
Joel also hosted several annual Student Leader Chanukah parties and Student Leader Shabbatons, the former a tradition which President Berman upheld during his first Chanukah in office in December 2017. President Berman will again host a Chanukah party for student leaders in his Teaneck home this December.
Photo Caption: Rubin and Belfer Halls on the Wilf Campus
Photo Credit: The Commentator