Why universities are joining forces

Private college mergers are on the rise, presenting commercial real estate challenges and opportunities

November 12, 2019

Small, private universities and colleges in the U.S. have been merging in an effort to cut costs as enrollment figures drop.

With student numbers likely to remain under pressure, experts say the trend is unlikely to abate any time soon.

“Consolidation is likely to accelerate in 2019 and beyond,” says Emily Wadhwani, Director at Fitch Ratings. “Smaller private institutions remain most susceptible to consolidation.”

Earlier this year, the University of Redlands announced that it was readying to acquire the 150-year old San Francisco Theological Seminary. Last summer, the University of Illinois at Chicago began the process of merging with the privately-run John Marshall Law School. A few years ago, two private law schools in Minnesota — William Mitchell College of Law and Hamline University — joined forces to become the Mitchell Hamline School of Law.

“Given the rising costs of higher education and a strong job market, more young people are deferring going to college, and that is one of the factors encouraging schools to merge,” says Nora V. Demleitner, the Roy L Steinheimer Jr. Professor of Law at Washington and Lee University School of Law in Lexington, Virginia.

Student figures dropping

Enrollment has been declining for eight straight years in the U.S., according to the National Student Clearinghouse Research Center. This spring, postsecondary enrollment fell 1.7 percent from a year earlier. That’s about 300,000 fewer students.

Four-year, for-profit schools saw the biggest decline, with a drop of 20 percent. By contrast, enrollment in four-year public colleges dropped 0.9 percent.

“We currently have $3 trillion worth of student debt unpaid,” says Herman Bulls, Vice Chairman, America’s, JLL, who founded  JLL’s Public Institutions business. “The implications of that are that kids already with debt are not going to be going back to school, which incentivizes these mergers.”

Reshaping of a campus

Aside from cutting costs, mergers are presenting opportunities to reshape campuses. Newly-formed university groups have been making investments in student housing, eateries, research centers, and coworking-style environments for students. Better internet connections have also been an area of focus.

Looking at how to maximize certain properties, or shed others, is a good way to stragically plan how to best use a campus as a recruitment tool, says Bulls.

“It’s an opportunity maximize the real estate portfolio as way of rebranding the merged universities, and creating or updating the properties that will most attract incoming students, and potentially increase enrollment,” Bulls says. 

Creating vibrant communities

Merged universities are developing spaces that bring together research centers, hospitals, restaurants, retailers, hotels and apartments into miniature neighborhoods that are nearly self-contained.

Harvard University, for example, is making use of a once-vacant university-owned parcel of land next to its campus. It is partnering with private entities to construct combination office and laboratory buildings, as well as a hotel and conference center, and an apartment building.

Demleitner at Washington and Lee University says that some merged colleges in more densely populated areas are bringing paying businesses into their spaces as they consolidate their real estate to make it more of a vibrant area and create job opportunities for students. One private law school in the Midwest, she says, is planning on renting out space in one of its buildings to law firms.

“Students will have access to internships, and it becomes a convenient asset to the institution,” she says.

Emmanuel College in Boston signed a 75-year lease with pharmaceutical giant Merck for a 300,000 square foot lab facility on campus. Brigham and Women’s Hospital also acquired space on the same campus for a medical research facility.

“Medical institutions, hospitals and nursing homes are in many cases some of the most suitable tenants for these properties,” says Bulls. “They become major employers and open opportunities for the students and surrounding community.”

From metal trays to gluten-free brownies

Holistically taking a look at events halls, gyms, music practice rooms, laundry facilities, faith-related buildings and administrative space is also a chance not only to revamp existing or deliver new buildings, but also to reconsider the way space is managed, and if they are adequately connected.

“It’s a chance to rethink facilities management and make sure that the services on the campus — such as security, cleaning and catering — are evolving,” says Lindsay Stowell, Executive Vice President in JLL’s Public Institutions group. “Food service can be upgraded from the days when it was all dining hall focused,” she says. “From fast-casual options outside the dining hall to healthier options in vending machines to ensuring that kitchens can cope with a wide range of dietary requirements, there are plenty of opportunities to improve the experience for current and potential students.”