The Fulmont College Association (FCA) has actually found five prospective buyers for three dormitory buildings at Fulton Montgomery Community College. Following a fair open and competitive bidding process, the FCA will soon announce the winning bid for its dorms.
The trouble for FCA began earlier this year when it attempted to sell the dorms below market value to a local developer. Selling the buildings at a loss had some wide-ranging implications. Several years ago, the FCA sought and received $11M in USDA loans to rehabilitate an existing dormitory and build two more.
The plan was simple. Build dorms. Rent rooms to foreign and out-of-district students. Make money. Things went well until the Trump Administration made it exceptionally hard for international students to remain in the country while on student visas. Unfortunately, this strategy collided with the COVID-19 pandemic. Without a steady stream of foreign students, FCA’s “other revenue” plan folded and the FCA defaulted on $10M in building loans.
(The Fulmont College Association (FCA) is a proxy owner for FMCC’s dorms. Under New York state law, FMCC cannot directly own its dormitories.)
The USDA agreed to allow FCA to sell the buildings for less than their market value of $1.8M, having been told that the sale to the local developer represented the best possible recovery on the deal. In return, the FCA agreed to turn over the proceeds of the sale to settle the loan debt. The local developer planned to convert the dorms to market-rate housing with a preference for student tenants.
The shocking results of fair, open and competitive bidding
A local attorney sued FCA on behalf of a FMCC student and another local landlord. As it turns out, FCA hired a local broker with ties to the College, who never actually marketed the dorms. The sweetheart deal knocked $700K off the sale price for the buyer. It also gave the broker a big check regardless of whether the USDA accepted the deal. And it would have screwed the US taxpayer out of millions of dollars.
The USDA sent a US Attorney to Johnstown. Not to be outdone, the New York State Attorney’s Office also sent a lawyer to oversee the settlement. Under the watchful eye of federal and state authorities, the FCA held a fair open and competitive bidding process. There was substantial interest in the properties after all. In the first sales attempt, FCA didn’t find any interested buyers because it didn’t look for any interested buyers. (As it turns out, not looking for something substantially increases the likelihood of not finding it.)
The competitive bidding process doesn’t mean there will be a happy ending for FCA and FMCC. The USDA is still going to be out about $8M when this story ends.
This story seems to offer two lessons for the price of one. First, community college administrators who concoct can’t-miss revenue-generation plans that involve public funds should be shown the door. Something about not being able to identify risk…
Second, when a publicly funded community college conducts a fair, open and competitive bidding process, the results can be remarkably different (for the taxpayers) than when the community college administration simply gives millions of public dollars away.
Photo Credit: Rich Brooks , via Flickr