Tuesday, July 08, 2014


Buying a Campus

Let’s say, for the sake of argument, that Corinthian starts selling off campuses, like its agreement with the Education Department says it will.

Who would buy them?  And what would they get?

I don’t mean those questions as gotchas; I mean them at face value.

A college has value in physical assets, human capital, and accreditation.  Human capital can’t be sold.  Employees may “come with” a campus, but they’re free to leave at any time.  Students may be enrolled, but can also leave at any time.  And since some overdue reforms were enacted a couple of years ago, my understanding is that regional accreditations can no longer be sold like taxi licenses.  (Some fraction of Corinthian’s campuses hold regional accreditation.)

Buildings and land can be sold, but my sense of proprietaries is that much of the time, they lease or rent rather than own.  I suppose there could be some value in taking over a lease, but it wouldn’t compare to selling a building in most contexts.  There’s presumably some value in office computers, furnishings, and the like, but in the grand scheme of things, we’re talking small numbers.

Some campuses have a sort of brand equity in their names, but I’m not sure that applies here.   The name “Harvard” has a cachet that “Everest College” does not.  In six years at DeVry, I don’t recall ever seeing a student wear a DeVry t-shirt.  At Williams and Rutgers, I saw students wearing school shirts almost every day.

Even assuming that some of the buildings are owned, which is possible, it’s not clear to me that any higher education buyer would be interested.  Other for-profits are largely struggling, and to the extent that they plan to grow, it’s mostly online.  Publics are in a similar spot.  

I could imagine some of the buildings becoming fairly generic office buildings, but again, that’s largely a soft-ish market.  

These questions matter on their own, but also as precedents.  From what I’m hearing, Corinthian may not be the last large-scale for-profit to close up shop and sell itself.  Whatever corners get cut this time around will be precedents for the next time.

It’s always possible that there’s some rapidly expanding college that’s coveting Corinthian’s properties, but I tend to doubt it; if it existed, presumably Corinthian would have sold some off on its own to pay the bills.  And unless it’s the buyer itself, the government can’t conjure buyers out of thin air.  Honestly, I’m perplexed as to how this is supposed to play out.

Wise and worldly readers, am I missing something?  Is there a way this could actually work?

There's the possibility of demolitions, to be replaced with condo's, retail, and things of that nature. My guess is that abandoned hospitals and primary/secondary schools would offer some guidance.
Interesting question and incredibly complex. My first impression from looking at the variety of locations is that it really depends. This made me curious, so I looked at the Corinthian 2013 annual report and the following is included in the properties portion of the statement:

"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.
You raise a very thought provoking question: What is a college, the buildings or the faculty? When individual colleges have been bought, they usually came with their current faculty and that is why accrediation was also included. Hundreds of small local operations are a different story.

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.
All the for-profit locations I've run across in my area (suburbs of a major city) have been tucked into generic spaces in buildings that exist for other purposes: one-step-above-strip-mall outdoor shopping areas, towers with businesses and/or retail on the first floor and offices or apartments above, etc. Maybe Corinthian has some facilities that look more like traditional campuses (I honestly can't remember the names of the schools I've seen), but, for the most part, for-profit facilities seem to be much more generic-urban/suburban-landscape than even the most integrated-into-the-neighborhood traditional-university buildings I've seen. I suspect using pre-existing, flexible space is part of the business plan.
I suspect that there will be several more for-profit schools that will soon go belly-up, perhaps even including the proprietary art school where I work. At my school, enrollments have been steadily decreasing and there have a couple of waves of layoffs of both faculty and administrative staff. Just about the only thing that is expanding is the amount of online education being offered.

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.

These are all valid questions. School buildings are usually not easy to convert into buildings for other purposes. For example, a classroom may either be too large to be a patient's room, or not enough to be used as an office space. The easiest solution is for another school to buy it. In the end, this would be a challenge for the for-profit colleges if they have to liquidate their assets quickly.

Sheldon Ward @ Brett Halvorson & Associates
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