School's Out At Hundreds Of Closing College Campuses, But Real Estate Is In Session

Time was of the essence at the former Johnson & Wales campus outside Denver. 

The campus was shutting down last year as the Rhode Island-based nonprofit university navigated financial instability, and nonprofit developer Urban Land Conservancy saw an opportunity.

"It was a very aggressive timeline," said Aaron Martinez, vice president of operations and sustainability at Urban Land Conservancy. "We were all just kind of building this plane as it was flying."

Within 90 days of the campus going up for sale, ULC and its partners closed on a successful $62M bid for the entire campus, including four dorms, a culinary arts hall and several academic buildings. ULC has since sold two of the dorms to an affordable housing developer for 50% below market value, allowing it to pass on those savings to the residents.

Martinez said he sees this deal as a model that other developers could replicate, and the U.S. has a growing number of shuttering campuses that could be candidates for redevelopment. 

Declining enrollment and financial hardships are forcing hundreds of college campuses across the country to close, leaving large properties vacant in some of the nation’s most desirable real estate markets. But while those closures open up opportunities for redevelopment, the real estate world is struggling to get a grasp on how those properties can be effectively utilized.

“It’s been challenging for the real estate profession to engage with that dynamic,”  said Brad Noyes, head of the higher education practice group at advisory firm Brailsford & Dunlavey. “Much of it is purpose-built real estate … some of that real estate is really valuable for alternative uses, and some of it is not.”

Nearly 600 institutions of higher education closed from 2017 to 2020, according to federal data analyzed by Inside Higher Ed, reducing the total number of public and private colleges and universities in the U.S. by 8.7%. The trend has continued throughout the pandemic, with institutions in Illinois, Virginia and two in California announcing closures over the last four months, according to an ongoing tracker from Higher Ed Dive. 

The wave of closures has been largely attributed to the so-called "demographic cliff," where the number of college-age students is expected to decline over the next 10 years. The changing demographics coincide with souring national attitudes toward higher education — people aged 18-29 were 33% less likely to say a college education was "very important" in 2019 than in 2013, according to polling from Gallup.

"There’s just this massive trough around people who are in the population who are 18-24 years old," said Ashley Finley, vice president of research and senior adviser to the president at the American Association of Colleges and Universities. "[The drop-off] was happening and only going to get worse, and then the pandemic hit." 

Government support during the pandemic, including Paycheck Protection Program loans and CARES Act funding, helped many colleges stay afloat, but Finley said that money has dried up.

“Those loans and that support has gone away, and so now campuses are really left with a declined enrollment and how to make up for these costs,” she said. 

In an AACU survey of more than 700 higher education professionals released last year, 74% said financial constraints were the most significant challenge their colleges and universities faced. That number is even higher among small private universities, and financial difficulties have already forced a host of prominent closures around the country.

"There are just an enormous amount of these small, private, teeny-tiny institutions that have really had to examine what their mission is and who they are serving and how," Finley said. "If they don’t figure it out, then I think they perish."

Some shuttering schools have been able to merge with other higher education partners. Over the past four years, 95 college mergers have occurred, largely among private schools with less than 5,000 students, according to The Wall Street Journal.

Northeastern University President Joseph Aoun told the WSJ he created an internal task force to find opportunities for mergers and acquisitions after the pandemic began, which bore fruit in 2021 when the university executed a deal to absorb Mills College, a former women’s college in California. But Aoun said the outreach yielded far more offers than the growing private university could entertain, leaving more distressed private universities to sit empty.

Robert Zemsky, a professor of higher education at the University of Pennsylvania, predicted to the WSJ that 500 more colleges and universities will close in the near term. 

When mergers fail, some campuses hit the market for sale. Marymount California University attempted to merge with Florida-based Saint Leo University, but days after the merger fell through, the university abandoned the search for a partner school and retained brokerage firm Berkadia to sell off all its properties.

The main campus, located in southern Los Angeles County with a view of the Pacific Ocean, includes several academic buildings and a vacant parcel that could be used for residential development. The university’s holdings also include 86 townhomes in nearby San Pedro, where the median list price for a home is $879K, according to Movoto.

The sale is in its final stages, Berkadia Managing Director Adrienne Barr told Bisnow in an email. She said 32 independent groups made offers on the property, including developers of senior housing and single-family rental.

“That property is stunningly, stunningly beautiful,” said Craig Cassell, global leader for the education practice group at Cushman & Wakefield. 

The brokerage is unaffiliated with the sale, but Cassell said selling Marymount’s campus when the finances were in bad shape made sense because it was in an attractive location.

Other campuses have also been quick to draw interested investors. In addition to its Denver campus, Johnson & Wales also sold its campus in North Miami to multiple developers, including six buildings to Property Markets Group, and it sold a golf management center and connected dorm to affiliates of IMC Equity Group.

PMG, in turn, flipped all of its Johnson & Wales holdings for more than double the acquisition price within a year. Neither PMG nor IMC Equity Group responded to requests for comment.

That captured value in North Miami is part of a larger trend of campus properties trading favorably in urban environments, especially as developers look for an easy residential play.

“The cliche of, ‘location, location, location,’ applies just as much in these cases as other types of real estate,” Brohoski said.

Selling university real estate can be deceptively tricky, according to Noyes, of Brailsford & Dunlavey. Some older campus buildings have historical designations and can be difficult to adaptively reuse. 

Noyes said the majority of his work is in engaging colleges and universities in partnerships with real estate firms to develop new buildings on their properties. A smaller proportion is selling property outright, and just a “sliver” of those clients are putting whole campuses up for sale.

“Universities are changing a lot, right? Their environment’s changing, they're being forced to change,” Noyes said. “That does create this dynamic of opportunity for real estate professionals to partner and provide value. But it's much more difficult for that to happen than people give it credit for.”

Still, there are ways the real estate industry can better maximize those opportunities when they come, Noyes said. First, they could benefit from compensation structures that allow for more time to close a deal, which can often take years for institutional property types.

Second, they can develop expertise by working with existing universities looking to alter their real estate portfolio. In hot markets like Washington, D.C., for instance, George Washington University has sold two hotel properties in six years and Howard University has partnered with developers on several apartment projects on excess properties around its campus in D.C.'s booming Shaw neighborhood. 

“The opportunity is much greater to work with universities that will remain and have enough change that buildings are freed up and real estate freed up than it is to focus on ones that will close,” he said. 

At Johnson & Wales' Denver campus, access to capital and partnerships with entities that knew the utility of its unique properties was crucial in allowing ULC to close on its deal, Martinez said.

The nonprofit brought aboard culinary incubator Kitchen Network to make use of 13 kitchens across two buildings at what’s now known as Mosaic Community Campus. Denver Public Schools, the entity that initially approached ULC about forming a partnership, plans to operate four academic buildings on the campus’ west side. The Denver Housing Authority is also planning to renovate two former residence halls with 72 units total on the campus’ south side into affordable homes.

Negotiations between ULC and Archway Communities to redevelop four additional buildings into affordable housing are ongoing, Martinez said. Archway is working to close on Low-Income Housing Tax Credits and other financing to complete its acquisition of the buildings.

Martinez said Mosaic was ULC’s largest deal to date, made possible in part by the Metro Denver Impact Facility, which provided ULC with roughly $50M to pursue larger projects, the Denver Post reported last year. 

He said there were few models guiding the nonprofit while it finalized the terms of the partnership, but he believes that with proper funding, there’s no reason Mosaic can’t serve as a model for others going forward.

“You really have to have fast and flexible funding and you have to have good partners,” Martinez said. “We really had a lot of advantages going for us, but I do think it is replicable.”