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American Campus: Sound The Bell, School's 'Almost' In

Jun. 02, 2020 7:00 AM ETBlackstone Inc. (BX)36 Comments


  • I’ve become increasingly certain that the campus housing sector won’t become some sort of apocalyptic wasteland.
  • My college experience was meaningful because 1) the relationships I fostered 2) in-person experiences that allowed me to develop skills beyond merely memorizing data.
  • As I told my son, obtaining a college education is important, especially the social interaction aspect of it. Besides, "You’re too legit to quit."
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I was recently reading an article in Barron’s titled “A Return to Campus, But Not to Normalcy.” It was written by Stephen K. Klasko – the president of Thomas Jefferson University and CEO of Jefferson Health – and Mark L. Tykocinski, the school’s executive vice president and academic affairs provost.

In the article, the duo explain how:

“Almost every university in the U.S. has suffered painful financial losses – refunding room and board to students, forgiving revenue-producing summer events, and paying for online technology to help sustain learning for spring and summer programs.”

For the record, it was no picnic on the parents' and students’ end either. Believe me.

Last month, my daughter graduated from college. She plans to begin grad courses this fall and was able to obtain a partial refund for room and board. And my son will be starting his freshman year at the same time, causing more COVID-19 questions and solution seeking.

It’s been quite the shutdown so far. For everyone involved.

But I might have some good news.

The New Normal Won’t Be Completely Different

Back to that article, the co-authors went on to explain how:

In a very compressed time span, we have begun to define the higher education of the 21st Century. What we’ve seen is a future marked by virtual tools, hybrid delivery of curriculum and, most importantly, the need to be nimble, creative, and imaginative in meeting the challenge of an increasingly digital world.”

As such, Thomas Jefferson University will be resuming an in-person educational format. However, it does recognize that:

“Some students may be concerned to join an in-person class. Where possible, we’ll create an all-digital option. Some classes will have extra sessions to maintain smaller sizes. Residence halls will be set up for single rooms, and we’re exploring off-campus housing options

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This article was written by

Brad Thomas profile picture

Brad Thomas has over 30 years of investing experience and has acquired, developed, or brokered in excess of $1B of commercial real estate transactions. He has been featured in Barron's, Bloomberg, Fox Business, and many other media outlets. He's the author of four books, including the latest, REITs For Dummies.

Brad, with the team of 10 analysts he leads, runs the investing group iREIT© on Alpha. It covers REITs, BDCs, MLPs, Preferreds, and other income-oriented alternatives. The team of analysts has a combined 100+ years of experience and includes a former hedge fund manager, due diligence officer, portfolio manager, PhD, military veteran, and advisor to a former U.S. President. The group provides weekly Zoom meetings and frequent CEO interviews. Learn more

Analyst’s Disclosure: I am/we are long ACC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (36)

I think you are letting your personal views cloud your investment thesis. The vast majority of students don’t go to college to “foster social relationships” , they do so do so they can get achieve financial success, namely use their degree to get a good job. Degrees aren’t worth anywhere near what they once were. Most graduates these days are working at Starbucks. Thanks to the internet, being to able to quickly learn a new skill is far more important than having some domain specific knowledge memorized. Why memorize something when in a second you can google it with perfect accuracy? Employers are starting to catch on and weighing credentials less and less, many top companies no longer require or even consider a degree. Colleges as currently structured are on their way out, they will be replaced by a modern, skills based, digital first experience. The virus has only accelerated this already underway transition. Yes there will be a niche catering to those like you who seek the traditional “college experience”, but their aren’t nearly enough of those people to sustain the current college capacity. Colleges are doomed, and ACC with it. Not today and maybe not tomorrow, but ACC will be bankrupt this decade.
Brad Thomas profile picture
@TecraTecra Thanks for commenting, and instead of debunking your entire comment, I will write a detailed slam piece (Rick Flair style of course), All the best. Brad
@Brad Thomas haha looking forward to reading it!
Wuastr profile picture
@TecraTecra At the conglomerate company I work for you cannot get an interview without a 4 year degree. Doesn’t matter if it is in basket weaving they INSIST on a degree. Perhaps they will see the light someday.
Ehud8 profile picture
@Brad Thomas
Something I hadn't thought about.
Seems if there is a uptick in COVID in the fall that there could be a pullback of the stock?
Appreciate the idea.
Happy investing!
Brad Thomas profile picture
@Ehud8 That's certainly a risk...many schools are taking Nov and Dec off to combat the cold weather.... Thanks for reading - Brad
Great Plains Investment Research profile picture
I think if a 2nd wave of COVID comes through as expected by many this could pull back close to lows ($25-$30 range). In my opinion not a great short term investment but long term a lot of opportunity. University of Nebraska Lincoln where I attend has already shortened the semester and move many courses online. That is coming from a state with relatively few cases. Rumors from peers sounds as though many are hesitant to put down cash for housing until further details come out in coming months and I think this could have a direct impact on the stock over the next few months. Just my opinion from my experiences but I will be looking elsewhere such as mall REITs as I see more potential for comeback in those areas that can better adapt to the changing environments. Thanks for the article!
Ehud8 profile picture
@Joseph Heglin
Seems to me that mall REITs would be more riskier.
So short term mall REITs are less riskier?
Overall I think ACC much better long term versus mall REITs.
I do believe ACC go have pull back & will monitor closely.
Happy investing.
Mitch Cumstein profile picture
"My college experience was meaningful because 1) the relationships I fostered 2) in-person experiences that allowed me to develop skills beyond merely memorizing data." Can someone explain to me how this comment is relevant to a proper financial analysis of the stock?
Brad Thomas profile picture
@Mitch Cumstein because many people attend college because of social experiences
Mitch Cumstein profile picture
True, but someone has to pay for it, and generally it isn't the kids. The parents aren't going to pay for apartments their children can't use as intended or where the "experience" as anticipated won't happen until things return to normal. Frankly, a lot of parents will have their own financial problem with which to be concerned, and useless the larger ticket items like college housing, cars, vacations, shore houses, etc. suffer as a result. ACC may eventually be okay, but this year is quite risky based on the events so far. Your article would better served without the fluff and personal views and anecdotes.
Wouldn’t touch this one with a 10 ft. pole.
Brad Thomas profile picture
@Gmball1 what about a 12 foot pole?
Only if Ladder Capital & Kimco did a combined buyout and converted malls into campus housing. 😀
Brad Thomas profile picture
@Gmball1 Working on LADR update this am for iREIT: seekingalpha.com/...
tonor profile picture
Before buying ACC, I recommend reading this book published in 2018: Demographics and the Demand for Higher Education by Nathan Grawe.

To summarize, the size of the college age cohort falls of a cliff beginning in 2026. The reason is the US birth rate crashed beginning with the financial crisis in 2008 and hasn't recovered, meaning the number of 18 year olds in the country resets lower starting in 2026. The book goes to explain university administrators are in denial about this trend staring them in the face. New England and the Midwest are worst hit, and only Texas looks safe.

In my opinion, while ACC isn't immune from this broad trend, their concentration at flagship state universities should partly insulate ACC from the upcoming drop in college attendance. Private schools, especially for-profit schools, are screwed.
Brad Thomas profile picture
@tonor Agreed, "their concentration at flagship state universities should partly insulate ACC from the upcoming drop in college attendance"... Thanks for reading and all the best. Brad
@tonor That is in 2026. Most universities are suffering now from the immigration and visa bans. Foreign students are the cash cows for many universities as they pay full tuition and live on campus. However, they mainly came to the US in hopes of getting a work visa and citizenship. Now, they can't come and without the hope of citizenship, they are much better off studying in Canada or Australia.

The California State system also announced that Fall classes would be virtual. In short, I am not convinced.
Brad Thomas profile picture
@Jack'sson As you know, California is an outlier, and also foreign student demand will be offset by juniors not traveling abroad.
Great article, Brad! Will forward it on to my "freshman in waiting" friends' kids attending college this fall. They won't so much care about ACC but can view a wider picture.
QQkazzoo profile picture
Interesting Read!
I am a university professor (have been for 40 years). I know how colleges work from the insdie out. I get the COVID-related emails from my university's President and Provost, so I have "insider information," so to speak.

Enrollments at many, if not most, American universities have been declining for several years. Now with COVID, all bets are off for this fall. According to my university's President, a new, national survey found that, nationwide, 20% of students who have already paid their deposit for fall have decided to take a gap year or not attend college at all. Many students have not sent in deposits at all. My institution is behind in the number of deposits we would have normally received by this time of year. At my school, I think we will be overjoyed if 50% of our students return, and a 50% loss is revenues might put us under. A 20% drop will be nearly crippling. This coming year is going be a great financial challenge to the large universities; small colleges may close for a year, or permanently. Combine the risks facing shopping malls (classrooms), with restaurants (dining halls), and hotels (dorms) for a picture of the risks facing universities.

Since college campuses tend to be Petri dishes as far as infectious disease, many students will stay home this semester until we know more about the virus. If I had college-aged children, I would be keeping the home this fall.

Social distancing? My classroom has a normal capacity of 22 students (with 18-inch distancing). With 6-foot distancing, it will hold about six. I can tell you we cannot afford to teach classes of six students. For the dorms, we will have move to single occupancy, so even if 100% of our students return, we can only house half as many as we used to. That cuts dorm revenue by 50%.

Make no mistake, college enrollments and dorm occupancies this fall will be the lowest in decades.

As far as ACC’s CEO Bill Bayless's comment: "our modern residence halls were better suited to achieve CDC guidelines and social distancing," what do you expect the CEO to say?? Spin. "Better suited" than the past does not mean "well suited."

I cannot think of a worst time since WWII to invest in campus housing. Any quotes from college presidents, and certainly any quote from ACC's CEO, need to be understood as coming from the very people we expect to be giving positive, and unrealistic, spins as they struggle to keep donors and students.

(And in case anyone thinks I am some bitter old man, I *LOVE* teaching college students, and I love the school where I serve. It is a calling for me, not simply a job. I no longer need to work for the paycheck; I teach because I love teaching. I hope our school will survive, but hope is not an investing strategy.)
QQkazzoo profile picture
The unemployment rate has declined over the past 10 years and seems like an obvious correlation to dropping student attendance numbers. Now, it stands to stay at elevated rates for some time to come. I can't think of a better catalyst to increase college attendance than a depression. Especially considering this show can so easily be financed with hope and debt.
Thanks for help proving my point below and great to hear first hand about the pressures most universities are facing.
I taught at the university for a few years until my practice grew. I liked teaching not the politics. How do you think internet will impact universities? I don't think it's a great idea personally.
Well done and informative piece but ACC has many headwinds ahead of it. Higher Education in general has some serious issues. Take a look at their top 10 list again. It is completely dominated by large public universities. Now this is by choice and has served ACC well over the years, but I have read many recent articles explaining how online courses will become significantly more prevalent with large public universities in order to lessen the on-campus numbers. This has to affect student housing. Second, is there any growth ahead? I do not see it at all. Universities will not support more housing when revenues are pressured nor will they have any issues retracting support for existing projects. In addition, traditional funding sources for ACC projects are not there right now, especially in the municipal market. Third, ACC needs to worry about some existing projects and maintaining occupancy as to not trip covenants on project specific debt. This could trigger some refunding needs at higher costs of capital or force ACC to use its own liquidity/balance sheet. I could go on, but this is enough to point out that ACC is a risky investment right now. I like ACC and worked with them before I retired. They are well managed and know what they are doing, but they can not control the market they are in and that market is going through significant, if not structural, change right now. That alone presents enough risk for me to stay away. Some things will never go back to normal and I think this is one of those spaces. I agree with everything you said about the college experience, but higher education has increased in price more than any other industry over the last 20 years. This crisis is bringing more attention to this and causing parents and their children to seriously reassess their choices (there is an NYU professor that has written some provocative pieces on this, but I can not remember his name at the moment). We tend to think of the best Universities, that will have no issues, when we think of higher education but that is a tiny percentage of the overall market. Most have serious issues ahead of them, so I think you have to see what happens across the country this fall before you consider investing. The downside just looks worse than the upside right now.
could be another upside to ACC and similar; my daughter is housing coordinator for a midsized public university. They have decided to return in the fall bur on-campus residences are being planned at 50% - 60% capacity for social distancing but have demand of over 80%. To gain capacity they are signing master leases with off-campus private companies., some which may be ACC properties. She said this is happening elsewhere too.
If I owned the stock I would be happy but they are horrible people. They gave no breaks on rent while basically empty as most students left. Their standard reply was" you have a binding contract as to bad" even though services were cut back , areas were closed and their over all variable costs were down. Great for them but not for the residents
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