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‘It doesn’t add up.’ Alumni, clergy worry about terms of $7M loan for struggling St. Aug’s
By Korie Dean for the News and Observer
Updated November 21, 2024
Dozens of local clergy and St. Augustine’s University alumni gathered in downtown Raleigh Wednesday to call for less “predatory” terms for a multi-million dollar loan the struggling historically Black university received this summer.
St. Augustine’s last December nearly lost its accreditation due to years of financial problems and has continued to struggle with those issues for nearly a year — at times, unable to pay employees and delaying the start of classes this fall due to ongoing funding and maintenance issues. The university lost its first appeal of the accrediting agency’s decision but won the second appeal in July, placing the university on probation until its accreditation is reviewed for the final time next month.
About a month after the second appeal was approved, university leaders had another reason to celebrate: They’d been approved for a $30 million line of credit, with an initial loan of $7 million.
University leaders praised the loan from Durham-based Gothic Ventures when they announced it in August, with the chair of the Board of Trustees calling it a “pivotal moment” that would be “crucial to our journey toward excellence.”
But in recent weeks, some have begun to question the terms of the loan.
WRAL and ABC11, The News & Observer’s newsgathering partner, each reported that the loan has a 24% interest rate plus a 2% management fee and that the university’s on- and off-campus properties were used as collateral to secure the loan, among other terms.
Speakers at Wednesday’s rally, which was hosted by the Save SAU Coalition, ONE Wake, Durham CAN and the North Carolina Latino Congress, said the terms of the loan place an already vulnerable St. Augustine’s into an even more precarious financial situation.
“It doesn’t add up,” said St. Augustine’s alumnus and former professor Derrick Sauls. “The only thing that does add up is that they do not respect the legacy of this great institution.”
A St. Augustine’s spokesperson did not return The News & Observer’s request Wednesday afternoon for comment about the terms of the university’s loan and Wednesday’s rally.
Kip Johnson, founder of Gothic Ventures, told The N&O in an emailed statement Thursday morning that he was aware of the rally, but said he would keep specific terms of the loan between the university and the company.
“A lender does not discuss the terms of a loan agreement with anyone other than the borrower. If St. Augustine’s University wants to discuss changing the loan terms in connection with an earlier loan payoff or the sale of our loan to another lender, we would absolutely be willing to sit down and discuss those terms with the University and its Board of Trustees,” Johnson wrote. “Our intention from the beginning has been to aid this historic HBCU in its time of great need when no other lender would do so.”
Clergy demand new terms for loan
Sauls called on Gothic Ventures and Johnson to “do the right thing for St. Augustine’s University and for this community and modify the terms of their predatory loan.”
“St. Augustine’s University’s very survival and its very existence depends on it,” Sauls said.
Two pastors, the Rev. Jemonde Taylor and Bishop Herbert Davis, outlined several demands for new loan terms. Those included:
- Reducing the loan’s interest rate from 24% to “a more reasonable and manageable rate of 9%”
- Waive the loan’s “prepayment penalty fee,” which several speakers said would cost the university more than $800,000 if it were to pay off the loan early
- Returning all interest the university has paid under the current rate.
If those demands aren’t met, Taylor called on Gothic Ventures “to waive the prepayment penalty when the board finds a different lender.” Davis also called for Attorney General Josh Stein to investigate the loan. (Stein was elected governor and will take office in January.)
Speakers also took issue with the university’s land being used as collateral. Alumnus Harold Mallette called the loan, and that specific term of the agreement, a “land grab.” He then led the roughly 50 rally attendees in a call-and-response with that phrase.
“We have a loan that is at 24%. ... Why?” Mallette asked. Attendees responded: “It’s a land grab.”
Interim St. Augustine’s President Marcus Burgess has previously cited the university’s land as one of its most valuable assets.
The Rev. Lisa Yebuah of Southeast Raleigh Table and the ONE Wake strategy team, who lives blocks away from the St. Augustine’s campus, said Wednesday the loan terms were comparable to usury — the biblical and legal idea referring to the lending of money with unreasonably high interest or other adverse terms. St. Augustine’s is affiliated with the Episcopal Church.
“St. Augustine’s is my neighbor, my holy neighbor,” Yebuah said. “If St. Augustine’s is your holy neighbor, then I cannot condone usury.”
Johnson told The N&O that Gothic Ventures and St. Augustine’s agreed on the terms of the loan after “a series of meetings with representatives of the University, its Board and its external legal counsel” and that the lender “made a number of concessions to address specific concerns of the University.”
Johnson defended the terms of the loan, including the interest rate, saying that it was “based on the financial challenges facing the University, which included its most recent audit report indicating concerns about the University’s ability to continue operating as a going concern, the lack of audited financial statements for the last several years, historical losses because revenues exceeded expenses, significant outstanding debt, IRS liens on the University’s property, and the suspension of the University’s accreditation.”
“Our default terms are standard for loans of this size and type,” Johnson said.
Bishop Clarence Laney, an alumnus of St. Augustine’s, painted a dire picture of the university’s future if the loan is not changed.
“We are concerned about the partnership between Gothic Ventures and St. Augustine’s University,” Laney said. “Because, if for any reason, St. Augustine’s is unable to repay Gothic Ventures, the land will be lost, and the university, as we know it, will cease to be.”