The Higher Education Institution Facilities OpportunityAn Escarpment Advisors report
The Higher Education Institution (HEI) industry is in the midst of fundamental disruption.
“In 15 Years From Now Half of US Universities May Be in Bankruptcy.” Source: Clayton Christiansen, Harvard Business School
The Old Higher Education Institution Business Model...
Undergraduates + MBA + MeD + JD = Growth
...has fundamentally changed
graduate enrollment has already dropped by over 20%. (Source:IPEDS)
The number Illinois high school graduates has declined by 13,000 students per year (Source:WICHE)
Private, Non Profit HEI's Located In Urban Areas Are At Significant Risk
Suffolk University, Boston -3,672 Students
Roosevelt University, Chicago -716 students
Touro College, New York City -3475 students
Howard University, Washington, DC -2256 students
...private, non profit HEI's located in the Top 5 Urban Markets lost 63,000 Students between 2009-14 (Source: IPEDS)
Many Urban HEI's Bet on the Status Quo and Lost
they have already reduced admission requirements (Source: Standard and Poor's)
they have already discounted tuition (Source: Moody's)
...and they invested heavily into new buildings for traditional students (Source: Bain & Company)
But Growth Opportunities Haven't Disappeared, They've Shifted...
Older, with families, and working full time,
...To Non-Traditional Older Students Balancing Work and Family
Non-Tradtional Students depend upon hybrid, online based course delivery that reduce the need for academic related facilities
by shifting either a portion or all of course instruction from being facility based to online.
Most non-traditional students do not use residential, athletic, and student service facilities.
Many private non profit HEI’s have resisted pursuing this new growth market
they believe that the traditional student market will return
they invested substantial sums in traditional student infrastructure
they lack the senior leadership resolve to reposition their institution
Today, HEI’s own more than $250 billion worth of real estate assets
HEI’s have been the leading issuers of tax exempt debt.
Roosevelt University $226m in Tax Exempt Debt
Suffolk University $353m in Tax Exempt Debt
Howard University $293m in Tax Exempt Debt
As scheduled tax exempt debt repayment escalates, many urban HEI’s are having increasing difficulty meeting their debt service coverage and liquidity covenants.
Bond Rating Agencies HEI outlook has been increasingly negative
"Smaller, regional institutions will continue to struggle to differentiate their brands, which will require additional investment and resources that could weaken their credit profiles in 2016." (Source: S&P's 2016 Higher Education Outlook)
HEI’s lag behind other real estate intensive industries in finding ways to turn a portion of these assets into cash (Source: Bain & Co)
REIT's like American Campus Communities focus exclusively on student housing assets
These trends have driven the growth of investment and operational vehicles such as student housing Real Estate Investment Trusts (REITs) which allow HEI’s to convert assets to cash.
...to assist at risk private, non-profit higher education institutions (HEI’s) in managing their underperforming academic facilities.
by creating a investment and operational vehicle that:
To accomplish this a HEI acquisition target profile must be developed. Then, technical support related to tax exempt debt redemption and HEI facility acquisition must be added.
This requires significant experience in the redemption of tax exempt debt and expertise in structuring investment and operational vehicles that acquire facilities .
This presents significant opportunities for organizations interested pushing the envelope of industry innovation.
Realizing this opportunity requires
the ability to move promptly
extensive experience in value-added real estate investments, newdevelopment, and property leasing and management,
tax exempt financing expertise
a thorough understanding of higher education trends
A Case Study: Episcopal Seminaries
In 2003, there were 11 masters and doctorate granting Episcopal seminaries. By 2015, overall enrollment declined by almost 40% and the student gender and age composition has shifted from young males, who were full-time, residential students to women over the age of 40 who are increasingly online students
General Theological Seminary, New York City
Since 2007, to reduce its $40 million debt, Manhattan based General Theological Seminary seminary has sold its 180 10th Street and 422 and 455 West 20th Street facilities.
Three other seminaries have either merged or sold facilities