Since 2023, Saint Augustine’s University has been fighting an uphill battle to remain financially solvent in efforts to retain its accreditation. A last-ditch loan in August staved off some of the more immediate problems, but it may end up a problematic deal for the historic HBCU, according to a renowned lending expert.
“Saint Augustine’s University was desperate and the lender took advantage of them,” says Martin Eakes, the head of the Center for Responsible Lending and co-founder of Self-Help, a national loan agency that advocates for fair lending practices.
How Saint Augustine’s Got Here
The Southern Association of Colleges and Schools Commission on Colleges has voted several times to remove the private HBCU’s accreditation after Saint Augustine’s failed to meet multiple financial standards.
The board’s most recent ruling to revoke accreditation came after giving the university a year to correct its financial problems. Some of the HBCU’s financial troubles include a nearly $10 million tax lien from the IRS, years of missing audits, and a period where the school couldn’t pay student refunds or its faculty.
Saint Augustine’s has started to correct these issues in the past year. Some changes were clerical, like completing audits for 2021-2024 and developing a sustainability plan. Others were more drastic, like laying off 50% of its employees.
One of the university’s most controversial decisions to shore up its finances came in August, when it entered into an up-to-$30 million loan agreement with Gothic Ventures, a local venture capitalist firm.
At the time, SAU Board of Trustees Chair Brian Boulware said the partnership was a “pivotal moment” for the HBCU.
“This funding secures our immediate needs while allowing us to implement our long-term vision,” Boulware said in a press release. “We believe our partnership with Gothic Ventures will be crucial to our journey toward excellence.”
The agreement allowed the university to complete its audits, finance payroll and student refunds, and cover other “essential operational expenses.” In return, Saint Augustine’s agreed to pay back what it borrows with 24% interest and a 2% loan management fee. The university also secured the deal with a deed of trust to several of its properties.
Kip Johnson is the founder and managing general partner of Gothic Ventures. He is also a local securities attorney and teaches venture capital finance classes at Duke University’s School of Law.
“Our belief in the transformative power of education aligns with the University’s historic mission, and we are confident that this collaboration will lead to future successes for the institution and its community,” Johnson said in the same press release.
Some Saint Augustine’s alumni, community members, and local lenders have called the deal a “land grab” and accused Johnson of using “predatory loan practices.”
WUNC reached out to Johnson and Saint Augustine’s University for comment. Johnson declined the interview request and the university did not respond.
WUNC spoke with Martin Eakes about the loan, what could be at risk for SAU as it appeals its accreditation removal next month, and what options the university has to pay it off.
This interview has been edited for clarity and brevity.
Can you start by giving me an overview of your concerns with this loan?
“My argument all along is that they knew — Gothic Ventures is a sophisticated player, a bunch of lawyers — and they knew at the time they made their loan that they had not one chance at all of losing a penny on this loan. So even if you took their exposure as being $20 million, they knew at the time they made the loan that the tax appraised value in Raleigh was at least $90 million on the collateral that they were taking. Well, you make a $20 million loan, and you’ve got $90 million of hard real estate collateral in a very dynamic market like Raleigh, you can’t lose a single penny. Kip Johnson has tried to justify that this was a risky loan, and that’s why they were entitled to charge a 26% interest rate. And I’m saying that’s just not true. It’s not a risky loan.
“There’s no way in the world that you can reasonably justify charging a 26% interest rate on this loan. Except that the borrower, Saint Augustine’s University, was desperate and the lender took advantage of them. Self-Help (Credit Union) is a lending organization. We make 10,000 loans per year. We probably make hundreds of commercial loans per year. And I’ve been doing this for 40 years. That’s a lot of loans, I mean, hundreds of thousands of loans that we’ve made. And I can tell you that, given my background as an industry advocate against predatory lending, that I feel like I have a pretty good sense of when a loan is unreasonable, onerous and impossible for the borrower to ever repay. And that’s what this loan is. It’s not a reasonable loan, no matter what Kip Johnson wants to say about it.”
What do you feel like the intent is in setting an interest rate that high?Â
“Well, setting an interest rate at this level clearly had the intent of extracting an unreasonable amount of interest that was not justified by the risk of the loan. So, at the best case, they were just trying to make a million, $2 million of excess profit that they didn’t deserve. In the worst case, the intent was that they wanted to have a loan that couldn’t be repaid. And that over time, the loan doubled in amount so they would be able to foreclose and attempt to take possession of the campus.”
I saw there were multiple names — Gothic Ventures, Gothic Investments, Gothic Falcon — involved with this loan. From your background in investments, what do you know about who’s involved?Â
“So, there are two entities that are associated with this loan. The first is Gothic Ventures, which is an entity that Kip Johnson is the managing partner for. He set up a separate subsidiary called Gothic Falcon LLC, and that was the entity that actually made the loan. So, what normally that would mean is that Gothic Ventures is a managing partner, and then Gothic Falcon got additional investors — none of whom they have been willing to disclose. And so, one of my questions has been, if you’re so proud of this loan and think that it really did help Saint Augustine’s — why don’t you tell us who are the parties who put the money up to do this loan?
“The rumor is that these are local real estate developers in Raleigh who want a piece of the Saint Augustine’s campus. But I have no evidence to prove that one way or another, but they have not taken any steps to disprove it either.
“You may not want to advertise who are the parties behind it. But if you’re going to come forward to the public and say, ‘we did a great thing, we saved a university, we gave them cash when no one else would,’ then you shouldn’t be embarrassed to say, ‘here are the parties who stepped up and did this noble thing.’ And you shouldn’t be embarrassed to say, here are the terms of the loan that we made, which was not disclosed until various news reports reported it. So, I’m just saying that’s inconsistent. If you actually are proud of this loan, tell us who’s behind it. And if you’re not proud of it, then quit bragging that you’ve done something good.”
You told me that you had a discussion with Kip Johnson, where you were confronting him about the nature of this loan and trying to see if he would get rid of the prepayment penalty or lower the interest. Could you tell me more about this discussion, and what you got from his motivations?
“I went to both parties — both to the board of Saint Augustine’s, but more directly to Kip Johnson, the managing partner for the predatory loan. My first request was simply that they reduce the loan interest rate from 26% to no more than 9%. And if they did that, that’s the end of it. I’m perfectly happy for them, and I think the university would benefit from having the loan, whether it’s at $7 million, $11 million, or $30 million. But Kip Johnson said no, he wasn’t willing to do that.
“And my second request then, is that if you’re not going to make this a reasonable, survivable, non-predatory loan, then waive the prepayment penalty. So, that I and others can help get reasonable financing to refinance this loan and pay it off with a reasonable loan that would be a much lower cost. And he said no to that as well.
“So that Saint Augustine’s can’t raise new cash either by selling inessential properties that are off campus or by borrowing from another source. Then you do start to think the intent is to lock the educational institution into this onerous loan in a way that they can’t get out of it. And that’s what it looks like to me.”
What’s the value of the university’s land that’s tied to this loan?
“The campus of Saint Augustine’s University has a tax value of about $90 million. That’s (an estimate from) the taxing authorities, which generally do not keep up with current market values. There has also been a subsequent appraisal that appraised the campus at about $180 million. And there’s individual properties on Oakwood and other places in Raleigh that the university owns that might be worth $17 million to $20 million. So in total, the collateral is roughly $200 million in value for an $11 million loan. And so, you just can’t justify the terms of this loan based on risk, because there is zero risk to Kip Johnson and Gothic Ventures or whoever is sponsoring this loan.”
I noticed the loan mentions Saint Augustine’s University remaining an accredited university. Is this, from your experience, standard practice? Or is it kind of another layer of the nature of this loan, making it knowing that the university’s accreditation is hanging in the balance?
“Well, this loan provided some temporary help on accreditation, because it helped pay for getting three years of audits that were past due. But it also harmed the accreditation, because it shows a bad lending financial position for the university. This loan is an example that would make an accreditation entity think that the university is not making good financial decisions. You should keep looking until you find a loan that is far better than 26% interest and all of the abusive features of this particular loan.”
What’s your prediction for how this all ends up for Saint Augustine’s? Do you think they can legitimately pay this loan off?
“The hope that the university has right now, they have a proposal for which the details are not yet known from a development group based in southern Florida called 50 Plus 1 Sports. That on its terms, as disclosed in the 2024 audit, would provide a cash up front payment of $60 million and would take a 99-year lease on a large portion of the main campus of Saint Augustine’s. My understanding is there are three different sections of the Saint Augustine’s campus that the Master Plan and the board have deemed not to be essential to the educational mission of the university. To turn it over to a party that has no completed projects yet – I can’t find any project that 50 Plus 1 Sports has bid successfully and completed – is a really, really risky venture. But that’s the hope from the University’s point of view. If that $60 million came through, they could pay off the predatory loan. They still would be paying the prepayment penalty, and it would be a dead loss of about $2 million dollars for no purpose whatsoever. But that’s the hope.”
“There’s no way for the university to pay back a $30 million loan at 26% interest out of its operations. I did this calculation, the excess interest that they would be paying comes out to be $5.2 million per year – solely because of having a predatory loan instead of a regular loan. $5.2 million per year is equivalent to 50 to 70 employees on staff. So, in order to pay just that one loan’s excess exorbitant interest, you’d have to lay off 50 to 70 staff members, which is a good portion of the entire Saint Augustine’s employment list.”
“So, they can’t pay it out of operations. The only hope is that they can use the land value and have some developer deal, like 50 Plus 1 Sports, that would put up enough money to pay it instead of operations. They cannot pay this loan back out of operations. No university, no nonprofit, no one could pay a 26% interest rate on $11 million or $30 million out of its own operations, it can’t be done.”
Yeah, the university hasn’t released many details about the deal with 50 Plus 1 sports and what it will entail.Â
“So, it’s an odd fit, but that doesn’t mean it’s a bad fit. It just means we don’t know any of the details. We do know that 50 Plus 1 Sports does not have a billion dollars of their own money to do the kind of development that was being reported for this deal. So, they will add some other partners that presumably are deep pocket. They had some strong financial partners in the proposal made for the Tampa Stadium, but the Tampa officials decided that 50 Plus 1 was not credible, did not have a track record, did not have the financial resources to pull off that project – and those questions should be asked here as well. There should be some serious scrutiny. If you’re basically selling half of the campus of Saint Augustine’s.”
“And thus far, there’s been no details released, so hopefully that will be forthcoming. And the details mean let’s see the actual proposal. Let’s see the actual legal contracts. Let’s see whether Saint Augustine’s is actually protected or not.”
And I saw that the loan with Gothic Ventures has a maturity date of June of 2025 (with the option for an extension until the end of the year). Does that mean SAU has to pay everything back by then?
“If you have a loan that has a maturity date of June 30, 2025, and you don’t pay it off in full – the lender can call the loan in default and start foreclosure. So that’s what it means. There’s several triggers in there, losing your accreditation, which you have to think that’s still a very high risk. The most recent SACSCOC opinion continued the termination of accreditation but gave them two or three months additional if they file an appeal. So, it’s not an easy path that the university has, but they should not be putting the campus at risk, as well as the future of the university with a loan like the loan they have from Gothic Ventures and Kip Johnson.”
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