February 2019 – Robust Retirement ®

Converting Private Colleges To Senior Housing – Just Announced Welltower Transaction Shows Opportunity is Real

On September 18, 2019, news sources reported the sale of the Newbury College Campus in Brookline, Massachusetts to the health care REIT Welltower for redevelopment into a senior housing community. Welltower reportedly acquired the nearly eight acre site containing 8 buildings with approximately 142,000 sq. ft. for $34 million. Welltower’s purchase confirm my view, expressed in a February post, that small college campus have the potential to be successfully converted to seniors housing (see below).

There was an opinion piece in The Wall Street Journal on Friday, February 22 entitled “America’s Disappearing Private Colleges”, written by Allen C. Guelzo, a professor of history at Gettysburg College. The piece documents the closing of Concordia College, a small historically black school in Selma, Alabama. It goes on to assert “The post-Great Recession baby bust will soon mean not enough students to keep small schools alive.”

In the early 1990s I spent more than five years advising colleges and universities on real estate issues. My clients included the University of Maryland, Johns Hopkins and the Hershey Medical Center of Penn State. Even then, future weakness was evident in demand for higher education once the Echo Boomers (children of the baby boomers) passed through their college years. As Mr. Guelzo documents, the decline in the number of future potential college students has worsened since that time because of the Great Recession.

“Birthrates plunged by almost 13% from 2007 to 2012 and the CDC believes fertility could fall further”. The birth dearth means 450,000 fewer college applicants in the 2020s according to economist Nathan Grawe in Demographics and the Demand for Higher Education. Hardest hit will be New York, Pennsylvania, New England and around the Great Lakes, areas most populated by private colleges.

Harvard and other well regarded and well-endowed universities will continue to see high demand and have the resources to make their institutions more affordable and more attractive to U.S and international student. Rice University, my son’s alma mater, for example just announced a 30% increase in applications after the University put in place a more generous and more predictable aid formula and my alma mater, Johns Hopkins University, recently announced a major gift from alum Michael Bloomberg to provide more generous aid for undergraduates.

While the best regarded and best-endowed colleges and universities will continue to do well, Mr. Guelzo documents a number of small colleges closing, “17 in Massachusetts alone in the past six years”, and cites estimates that up to half of all U.S. colleges will close or go bankrupt within the next decade. Moody’s estimates that 15 private colleges will close per year. My experience as a real estate advisor to colleges and universities, and as a student of demographics, lead me to believe these dire predictions.

At the end of his opinion piece, Mr Guelzo identifies four options for leadership of small private colleges (1. Get serious about mergers, 2. Focus recruitment strategies westward where the decline in birthrates was lower, 3. Craft a niche for a particular student, and 4. Establish partnerships with local two-year colleges. ) I doubt any of these options alone will be very effective in combatting the “birth dearth” but see another option that small colleges should definitely consider – converting in whole or in part to seniors housing communities.

I make the connections between private colleges and seniors housing because, after working as a real estate advisor to colleges and universities, I spent 15 as a stock analyst covering senior’s housing and care companies and REITs owning seniors housing and heath care real estate. While the demographics driving potential demand for colleges and universities are dreadful in the 2020s, the demographics driving demand for seniors housing and care are very strong. The first Baby Boomers turn 75 in 2021 and turn 80 in 2026.

Senior housing operators and REITs owning senior housing real estate are currently struggling with some overcapacity pressuring rents and occupancy and higher labor cost pressuring margins. I believe the seniors housing industry was too optimistic about the age at which seniors would move to seniors housing, found capital too easy to get, which prompted some overbuilding, and has been less than fully successful in providing living environments to which seniors want to move. Lower levels of seniors housing construction and the continued aging of the population should gradual and significantly improve demand prospects for seniors housing in the 2020s. I believe converting small colleges in whole or in part to seniors housing has the potential to allow small colleges to survive or provide a softer landing for faculty and staff at colleges that need to close; and can also provide a more desirable housing option for seniors and potentially help with labor costs.

Some of the most successful and most attractive senior housing communities i have observed offer campus-like settings with a wide range of social, cultural, educational and recreational amenities. Erickson Living and Senior Living Communities and a number of large not-for-profit continuing care communities (CCRCs) provide attractive campuses with a high level or amenities. (See links below to ericksonliving.com and senior-living-communities.com). Erickson’s first senior housing community was developed on the site of a former convent with some of the same qualities as a small college campus.

https://www.ericksonliving.com

https://senior-living-communities.com/

The challenge of developing large CCRCs is that they require very large upfront investments of money and time to be created on a greenfield basis. Small colleges, which have campuses, dormitories, cultural, educational and recreational amenities in place, could potentially be converted to seniors housing campuses at a lower cost than greenfield development while offering name recognition and character from the outset. One other feature seldom seen in senior housing communities, but which appears to significantly increase a community’s appeal to seniors, is a mixed age environment rather than a senior citizen ghetto. My favorite example remains Merrill Gardens at the University (see link below).

https://www.merrillgardens.com/senior-living/wa/

Merrill Garden at the University is a community near the University of Washington in Seattle that combines a senior housing community, non-age-restricted apartments and retail on a single site with the apartment building and senior housing community sharing an interior courtyard and the senior housing community’s bars and restaurant open to the public allowing apartment and senior housing residents to mix. Senior housing communities developed on or near other university campuses also have been attractive to seniors and appeal to alumni but I believe there is an opportunity to more fully integrate seniors housing into a college or university campus and create more interaction between seniors, traditional college-age students, faculty and staff than has been done to date. It is this type of integrated seniors housing / college setting development that I see as an attractive 5th option to those Mr. Guezlo identifies to save some of America’s small colleges.

Integrating senior housing into an existing college campus or fully converting a small college campus to seniors housing may also offer labor force benefits because students, existing college staff and potentially even faculty could be employed to providing programming, patient care and building maintenance for seniors housing as well as university buildings and might form a base labor force from which senior housing could draw even if the college is closing. Seniors may also be able to help fill college classes, particularly in the humanities or even serve as adjunct faculty.

The most feasible strategy for a college to evaluate and execute a partial or full conversion to seniors housing is to engaged qualified real estate and financial advisors to evaluate the option and help run a process to select a for-profit or not-for-profit senior housing partner. For some religious-affiliated colleges, the same denomination may also develop and operate seniors housing, which might ease some of the anxiety of teaming with a senior housing partner.

I welcome inquiries from colleges and universities wishing to consider a college to senior housing conversion and may be able to help evaluate such options at a strategic level and assemble a team to help a college or university execute such a conversion. For some insights into the process see the link to an article I co-authored in 1996 entitled “Privatizing University Properties” in the Journal Planning for Higher Education.

https://www.scup.org/page/phe/read/article?data_id=31113&view=article

Customized Tour of Northern Italy Was Great Experience

My wife and I spent nearly three weeks touring northern Italy in September and early October 2018. As was the case with several of our recent vacations, we used a travel agent working with a in-country tour operator to design a customized tour for the two of us rather than joining a group. The Italian tour operator we worked with was Olive Tree Escapes, which has an office in Chicago.

This was our third trip to Italy and was designed to allow us to see parts of the county we had not visited before, see great art and have some time to relax and immerse ourselves in Italian culture. We visited Venice, Bologna which we used as a base for a number of day trips, Lake Como and Milan. Our day trips from Bologna included Ravenna, Florence, Ferrara and the Emilia Romagna countryside.

Logistics

We flew direct from Philadelphia to Venice on American Airlines and returned from Venice to Philadelphia on another direct flight. If we had returned from Milan, we would have had to take a connecting flight to reach Philadelphia. For travel between major cities in Italy we used the excellent high speed rail service, the Frecciarossa, that travels up to 185 miles per hour with a much smoother ride than Acela service in the U.S. For shorter day-trips out of Bologna we used slower but still comfortable and efficient regional train service. It is possible to reserve trains and get tickets from the U.S. over the Internet. We used the national rail service, Trenitalia. A private rail company, .Italio, now offers competitive and sometimes lower priced service on some routes and it may be worth checking on this option. Our tour company arranged for transfers to and from the airport and the major inter-city train stations in cities we visited.

Venice

There are no cars, buses or taxis in the central parts of Venice. Getting from Venice’s Marco Polo airport to the old city included a car service from the airport terminal to a water taxi and porter, a water taxi ride up the Grand Canal to a dock near our hotel and a walk from the dock to our hotel with our porter. We stayed at the Londra Palace located on the waterfront promenade facing the Canale di San Marco, a few blocks from Piazza San Marco, the center of Venice. This is an ideal location, close to the main tourist sites with canal views and vaparetto (Venice’s water bus) docks located just across from the front of the hotel. Even though we booked well in advance we were unable to get a deluxe room with a canal view but our room was comfortable, big enough for two and well appointed. Our room came with complementary breakfast served on the first floor with the option of eating outside facing the canal. Service at the Londra Palace was excellent and we would definitely recommend the hotel.

On the day we arrived in Venice we walked through Piazza San Marco and explored parts of central Venice on foot, visiting Santa Maria Gloriosa dei Frari Church, which feature altarpieces and artwork by Titian, Bellini and Tiziano. Our first full day in the city we toured the Basilica San Marco and the Doge’s Palace, for which a guide that can help you avoid the long lines is a worthwhile investment. Other highlights of our visit to Venice included a guided tour of the Peggy Guggenheim Collection of modern art, touring the Academia museum, a visit to the Jewish ghetto where we toured several synagogues and visiting a European Crafts Fair at San Giorgio Maggiore. Our tour company arranged a gondola ride for us one evening in Venice, which was very short and a bit of a disappointment. If I was doing it again, I would find and negotiate my own gondola ride. We ate well in Venice but favored small, local restaurants recommended by our guides or hotel. We did splurge on aperitifs at the Caffe Florian on Piazza San Marco.

Bologna

We picked Bologna, which is much less of a tourist destination than Venice, Florence or Milan more for its location as a base from which to explore Ravenna and Florence than for any other reason. But we found Bologna to be a delightful city featuring great food, the oldest university in Europe, attractive streets with covered arcades and good shopping options. We stayed for a week in an apartment in Bologna located mid-way between the train station and the main square just off Via dell’ Indipendenza. We took a walking food tour in Bologna with stops at a chocolate shop, charcuterie, pasta restaurant, bakery and gelateria, which were all great. We also did a food tour of the Emiglia Romagna countryside to see Parmigiano Reggiano, Balsamic Vinegar and Parma Ham being made, with a stop for lunch at a vineyard restaurant. When planning the trip we thought two food tours were excessive but we very much enjoyed them both. We also explored the center of Bologna including historic buildings of the University of Bologna, founded in 1088.

One of the nice things about staying in an apartment versus a hotel, in addition to having a washer and dryer, is the ability to have meals on your own. The owner of the apartment we rented directed us to groceries and salumerias. We ate simple breakfasts of yogurt and coffee and had two dinners in, one of fresh pasta with pesto and salad and one of cheese, charcuterie and bread with olive oil and balsamic vinegar.

Restaurant near our apartment in Bologna

Florence

We took a day trip from Bologna to Florence, only 35 minutes by train, to visit the Uffizi Gallery, the Bargello and Pitti Palace. We had spent time in Florence on a previous trip to Italy, so it was an easy choice for us to focus on the art rather than exploring the City. It is essential to make reservations in advance to tour the Uffizi and the Pitti Palace and at the Uffizi you will still wait in a long line to enter near when your timed-ticket indicates. The Uffizi is one of the world’s great museums and it is well worth putting up with the large crowds to see its collection. In Florence, we had cappuccino and breakfast at an outdoor cafe, a nice lunch in wine bar overlooking the Arno River but ended up having dinner in the train station because our train back to Bologna was 90 minutes late. Due to a problem with the tracks north of Rome, all of the trains running south to north were delayed.

Ravenna

Ravenna dates to the 2nd century BC, when the Romans colonized the Po River Valley. It served as a major port and naval station for Caesar Augustus, was the capital of the western Roman empire and the capital for barbarian kings Odoacer and Theodoric. The magnificent mosaics found in Ravenna today combine Byzantine, Arian and Roman Christian influences.

Ravenna is a flat, compact and very walkable city and we toured the city and a number of its churches with a private guide. It was a highlight of our trip and a place you could spend more than a day. Ravenna was a high priority for my wife, who is an art museum docent, but both of us really enjoyed the mosaics and the city.

Ferrara

Ferrara is only 20 – 30 minutes from Bologna by trains and was recommended to us as a pleasant city with a strong Jewish heritage. The city seemed pleasant enough and has a very interesting castle but all of the Jewish sites were closed for renovation when we visited and we we were a bit disappointed. We did not have a guide in Ferrara, which may have also caused us to miss some things.

Lake Como

Lake Como is simply gorgeous. We stayed in Varenna on the eastern shore of the lake, which is only a little more than an hour’s very scenic drive from Milan’s central station. We chose Varenna because Rick Steves recommends it as a base and were very pleased with our choice. We stayed at the delightful Villa Cipressi hotel, which is right on the lake, features it own botanical gardens and is only a short walk to the main square.

While on Lake Como, we took our own private boat tour of the Lake that included stops at Bellagio and Villa del Balbianello and cruising past a number of towns and villa’s including George Clooney’s. We also spent a day exploring Varenna and one day lounging on the grounds of our hotel and the Villa Monastero, which is right next door. We had meals at restaurants overlook the main square with its historic churches or overlooking the lake.

Sunset over Lake Como from our hotel window

Milan

We really had only one reason to visit Milan – to see Leonardo da Vinci’s Last Supper. This requires advance booking and usually booking with a guided group. Seeing the Last Supper was a great experience but it is a highly regimented and short visit. At your appointed time, your guide gives you background while you wait on the plaza outside the refectory of the Santa Maria della Grazie Church, where the painting is located. You then enter an anteroom where the humidity is adjusted before you enter the room housing the painting. Each group only gets 15 minutes to view the painting and for this year preparatory sketches for the Last Supper from the collection of the British Royal Family. While the Last Supper began deteriorating from almost the moment it was completed because of the technique da Vinci chose to use, has suffered through bad and good restoration and has very muted colors today, it is still a painting of immense power and a masterful work of art.

While our focus in Milan was the Last Supper, we spent a day and a half and two nights in the City. Our hotel, the Sina Hotel de la Ville, was nondescript but pleasant and well-located. While in Milan we visited the La Scala opera house and museum on our own and did some shopping in and around the Galleria Vittorio Emanuele II shopping arcade, a 19th century high-end mall that remind us of GUM in Moscow. We also took a guided tour of Milan’s Duomo, which is a grand while lace-like Italian Gothic Cathedral.

We also ate two very good meals in Milan, one in the restaurant hotel and one in a restaurant called Restaurante Da Bruno, which is located in a brutalist Fascist-era building a couple of blocks off the main Piazza del Duomo. The waiter did not speak English so he brought out a large basket of freshly harvested porcini mushrooms to convey his recommendation and the pasta with mushrooms were great.