What happens if the universities don't return in the fall?

Question

Universities across America are online-only right now, as well as for the summer. What if they stay online-only in the fall?

There are many college towns whose economies and rental markets depend heavily on students being in town, to the point where the vast majority of leases are August to August or July to July. What do you predict will happen to those economies and markets if a gigantic fraction (some cities are 1/3 or more) of the population (i.e. students) stay out of town?

To back up further, how likely do you think it will be that universities stay online-only in the fall?

John Colburn · Answer

I can not speak for other parts of the country, but in the Boston market there is a real possibility that universities will not open in the fall.    The business I am in provides services to universities and I can tell you that several schools are strongly considering not opening dorms in the fall.    To the extent that they have notified us of their intentions.

Jonathan R McLaughlin · Answer

Yes, those pro sports teams in Miami and Ohio and Alabama and elsewhere will definitely be hurt :) I know the economic impact will be severe, but part of me would be delighted to see the NCAA brought low.  OK back to real estate.

Jonathan R McLaughlin · Answer

@Stephen J Davis oh I think thats wrong--and a veteran of 15 years of higher ed fundraising here. Most universities end their terms in May, so its both to costly and logistically impossible to come back this year. No benefit to them or the students really. Better off putting a plan in place for the fall and start fresh.

I do think we can and should see them back by then. Population not high risk AT ALL and in non-urban universities you have a perfect environment for keeping mostly young people self contained and away from older at risk folks, and isolating/tracing and using online and video if necessary to augment classroom learning is already mostly set up.

I mean, how often did you wake up and go "ah, I don't need to go today...I'll just get the notes at some point" Not me of course....

Damaso Bautista · Answer

I am on the other side on this one.   My son signed a lease to live in the FRAT house in the Fall so if Universities don't open up,  its going to suck for me to have to pay $1300 a month for him to be sitting in Los Angeles doing his classes online instead of living in the FRAT house.

I am hoping if this happens that there will be some type adjustment to the lease, but I am not holding my breath on that one.

I am also not the type of person not to fulfill my financial obligations. 800 credit is important to me.

Cliff H. · Answer

Online education is the market shift that many colleges have been trying their hardest to ignore because there’s too much money to be made in traditional on-campus lodging. I cannot speak to the impact to local businesses, but of all my rentals, the ones I am least concerned about are the college rentals, which have, along with almost anything associated with higher education, had a fat enough margin to survive far longer than a 1-2 semesters of unexpected vacancy.

And frankly, having lived in Boston and competed against endless armies of students throwing $3k+/mo at tiny 2BR apartments I cannot believe any PM or owner in the city would not be similarly well enough off to ride out the downturn.

We’re also ignoring the fact that many students sign multi-year leases or have other reasons to be in the city other than just in-person classes.

Ujwal Velagapudi · Answer

I don't know to what extent universities will open or not in the fall (neither does anyone else), but I do know what sort of impact that it can have on the local market.

I worked in my college town doing door to door sales as an intern in the summer. I walked into dozens of businesses every day, and so did the rest of my team of 7. Most businesses during the summers, when a majority of the students are not in town, are just scraping by and counting down the days till the fall term re-opens. I've heard/seen this from numerous business owners I've sat down with to discuss their business.They rely on those ~8 months of the primary school terms (fall & spring) to bring in the majority of their annual business and just ride out the summers the best they can.

The shutdown from mid-March through early May (roughly 6-8+ weeks of school) will hit these businesses very hard. This was a good chunk of the money that they were going to use to keep their business running through the summer. Without this, and a best case scenario of slowly re-opening to some extent in May will still hit these businesses even harder as they face additional restrictions even when open, slower business due to fear, even fewer students in the summer, etc. I do not see this ending well for the college market economies.

As for real estate, my little brother is in college now and we are going through this in terms of what to do with his lease for this year and next year. His current lease term ends in August, and the next one starts in August. If universities are going to go fully online, or offer every class on-line, then it may push some students to reconsider the risk and stay at home to learn online. It's bad enough paying universities tens of thousands for a partial version (online vs. on-site classes) of what we're paying for, but to also pay the other inflated expenses of living expenses in a college town may not be worth it. Obviously every kid wants to be back in school with their friends, but if there are no/fewer events, no sports, etc. then it will definitely be a decision a lot of students/parents will be making to not send their kids back to their college towns. The lease that they had signed though is off-campus, and has nothing to do with the university's operations (at least on paper), but I do think they could see a lot of cancelled leases as a result and a hit to these massive student housing developments. All of this of course depends on each individual market, how much of the school is being re-opened, what activities within the school are being opened, etc.

Also, I've been thinking this could cause a major shift in the coming years with higher education going online. I loved college for the social aspect, but putting that aside in a financial crunch, why not spend a fraction of the cost and get an online degree? Or some hybrid with labs, equipment rooms, etc. available to students. Especially at lower tier schools where an online degree is nearly on par or for families that are needing to save money, I think it will definitely expedite this shift towards more online degrees.

Alexander M Stanton · Answer

Absolutely! There is still a fair amount of demand, but I am seeing a lot of clients postponing their search - maybe 10% of people I've interacted with have actually said in writing that they are canceling their search for now, and/or are expressly waiting to see what happens or delaying their move to Boston.

The biggest challenge right now is on renting things sight-unseen. Most tenants won't rent something without viewing it, but the tenants in place who haven't broken their leases won't let people into their apartment for showings! The properties getting rented have 3D tours, or at the absolute least videos, and primarily properties with 3D tours are getting rented.

Landlords are scared, and that fear combined with the challenges in getting vacant and occupied apartments rented is creating an artificial dip in prices as high as 40% in some areas and price points. It will take a while to bounce back from this. I would see this as a tremendous opportunity for liquid investors to purchase properties in the next 2-4 months from landlords who don't want to weather the current vacancies.

Fundamentally, we're seeing a big shift from a seller's market to a buyer's market in Boston rentals which as far as I know is unprecedented. I think we will see more landlords paying broker fees to get tenants in place, accepting lower rents, and having to make concessions for qualified tenants. Renters with a high credit score or quality cosigner will have the option to demand discounts if they recognize the situation for what it is.

The flip side is, if things do return to normal in the middle of the summer, we'll likely see a big spike in prices as landlords seek to capitalize on the newfound demand.

Alexander M Stanton · Answer

@David Barnett

That’s for real! I’m a rental agent in Boston and a lot of students and their parents are still holding their breath. There have already been so many lease breaks and discounted medium term rentals with landlords hoping to lock someone in with a 9/1 price increase

David Barnett · Answer

Boston landlords might be in big trouble if the universities don't open up in the Fall.  Just think about all of the apartments and multifamilies that are around the universities.  Brighton, Cambridge, Allston, and other parts of Boston might all have big vacancies if the schools don't open up in the Fall.  It could get very interesting, and it might impact the value.  Landlords that are not well capitalized might have a real problem as we go into the summer.  Very interesting to see if other schools follow BU's lead.

Pamela M Smith · Answer

@Jonathan R McLaughlin Quarantine pledge? How 'bout routine testing pledge, too?

What happens if the universities don't return in the fall?

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