Tuesday, July 08, 2014
Buying a Campus
Wise and worldly readers, am I missing something? Is there a way this could actually work?
"All but 4 of our facilities are leased. In addition, we lease our campus support center offices. Most of our leases have primary terms between 5 and 10 years with options to extend the lease, at our election."
The only thing I can think that they would be able to do is to sell off leases or negotiate release from those leases that are not expiring. Looking at their balance sheet, it is going to be tight. Hopefully they have a great team of lawyers to liquidate the holdings.
In the case of one Everest operation I read about while traveling, they appear to have a good market for the medical staffing people they produce so that operation might be of interest to another company or even as a satellite for a non-profit in the area. (There are lots of others that might take up the slack.) But you could do that without necessarily taking over their lease.
The equipment in the facility is potentially quite valuable. Another college might buy it just to upgrade their own facility if the simulators etc are relatively new. (One set of anatomy models costs more than a building full of computers and furniture.) A lot depends on whether the contents are owned outright or collateral for a loan.
I just used Google to look at their building, and it is a generic turn-of-the-21st-century office building. Although likely a "will build to suit" structure, it might only need a different sign out front. Whether the investors in that building will also go bankrupt depends on factors that are impossible to guess from what is available on line, but odds are their loan is for a lot more than it is worth.
In pursuit of lower costs, many schools have outsourced many of their key functions—bookstores, food services, groundskeeping, maintenance, janitorial services, etc. Now, even the education function itself is being outsourced. I often quip that our school should get rid of the middleman entirely, and have Pearson offer the degrees for us.
What would happen to the physical resources if my school went bust? Here, all of the school's classrooms and offices are parts of large commercial buildings, so all that needs to be done is to rent out the rooms to some other commercial user. Within only a few months, you will find a Starbucks, a Walgreen drugstore, an insurance agency, or a law office where our school used to be.
A couple of miles from where I live there was a well-known hospital that went bust. All of the buildings sat vacant for several years until they were all torn down. Nothing replaced the buildings, and the lot is still completely vacant. No high-rise condos or commercial buildings have been built there.
Sheldon Ward @ Brett Halvorson & Associates