Thomas Jefferson sells building, claims solid financial footing

Thomas Jefferson School of Law announced a major debt restructuring on Oct. 29th, which will reduce its debt from $127 million to $40 million. As part of the agreement, the bondholders will take ownership of the school’s four-year-old building, and Thomas Jefferson will pay market rate rent to stay in the building.

“The restructuring is a major step toward achieving our goals,” said Thomas Guernsey, dean of Thomas Jefferson. “It puts the school on a solid financial footing.”

The school will pay $5 million a year in rent for the building, which is based on market rate, roughly $2.30 per square foot. The school has a three-year lease that could be renewed up to ten years.

Guernsey said the bondholders, who now own the building, and the law school intend for a long-term relationship 

“The renewals give us a sense of optionality,” he said. “If the bondholders don’t want to renew then our debt drops to $25 or $20 million.”

The school still has $40 million in debt, but will pay only 2 percent interest on the new notes, which come with a 17-year term. That is a significant drop from interest rates on the previous outstanding taxable bonds of 11 percent and 7 percent for non-taxable bonds.

“I think the whole deal is a reflection of the fact that the bondholders were very desirous for us to succeed,” Guernsey said.

Guernsey was hired as dean in 2013 and tasked with getting the school out of a difficult and deteriorating financial situation. Enrollment was dropping and with it the school’s ability to pay the high debt payments that came with the new building.

The law school was paying about $12 million in principal interest and debt a year. It will now pay $6 million a year in rent and interest.

With a small endowment, Thomas Jefferson generates 95 percent of its income from tuition, according to tax filings.

The school also cut expenses by 10 percent last year when it laid off 14 staff members, and it rented out space in the building to high-end restaurant Bottega Americano, to bring in additional revenue.

“The faculty went through a lot of uncertainty in the past year,” Guernsey said. “Morale is incredibly high given the circumstances. And staff has stepped up as well.”

He said faculty have volunteered to teach additional courses for no extra money, and the faculty revamped the curriculum to better prepare students for the bar exam.

“It is a faculty that has simply stepped up [to the challenge],” he said.

He said he knew the school had challenges when he was hired, but that he did not think the building’s debt would consume his time as it has.

“The building put us in a position where it was difficult to respond to other issues,” he said. “Now that we have dealt with this, we can focus all resources on declining enrollment, the lousy job market and preparing our students for the new legal world.”

He said the school has no plans to increase enrollment to its previous numbers. Last fall it enrolled 264 first-year students, down from 348 in 2010.

“We are going to adapt ourselves to what is the new reality and we are going to reconfigure ourselves to be a stronger and smaller law school,” he said.