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Vocational Colleges, Universities Shedding Space Amid Financial Woes

San Diego Experts Say Other Types of Schools Will Likely Fill Some Voids
August 9, 2018

The Alameda, CA campus of Argosy University, in the San Francisco Bay Area, is among 30 locations in 26 cities that are set to be closed before year’s end by Dream Center Education Holdings.

Faced with declining enrollments amid heightened government scrutiny, for-profit universities and other private vocational schools are busily downsizing and closing dozens of locations across the country. It means worker layoffs and headaches for students whose studies are being disrupted, along with challenges and opportunities for landlords of commercial buildings where thousands of square feet are being vacated.

San Diego has been a microcosm of the struggles facing private, for-profit and non-profit educational operators and their real estate footprints.

In San Diego at least, no doom-and-gloom real estate scenario has arisen from recent announced closings encompassing at least 30 campuses in 26 U.S. cities. Local observers point to still-strong space demand from other types of educational organizations, including public and private charter and trade schools that have so far managed to avoid the regulatory and financial problems encountered in recent years by several national and regional vocational schools.

Closings have hit most widely in the area of for-profit colleges and universities, but they aren't limited to that sector alone.

San Diego-based Coleman University, a private and non-profit school which had operated since the early 1960s and trained workers in computer and information technology, recently announced it was closing its doors. It cited financial and accreditation issues for the decision, amid dwindling enrollments.

The university’s one location, consisting of two buildings on Balboa Avenue in the city’s Kearny Mesa neighborhood that served about 200 students, closed on Aug. 5. Coleman University purchased the buildings, totaling just under 87,000 square feet, for $13 million in 2005, according to CoStar data.

Coleman University recently closed its operations in San Diego and has placed its Kearny Mesa property up for sale.

They are now being marketed for sale by the university and its brokers at Voit Real Estate Services. No asking price has been disclosed.

In the week since the Coleman location hit the market, Voit Senior Vice President Brian Mulvaney said the firm has fielded serious interest from at least 10 education and general-business users about the site, along with about 20 calls from other types of investors querying about a potential repurposing.

Many expressing interest include various charter and vocational schools seeking to expand within Southern California, he said.

“The locations that already have the instructional improvements are attractive to those users,” Mulvaney said. “There’s still a lot of demand for educational space.”

The Coleman property is not zoned for K-12 educational uses, but Mulvaney said active tenants and buyers in San Diego, and elsewhere in Southern California, include operators of pre-college charter schools, as well as trade schools geared to industries such as healthcare and computer coding.

  Related News: Beleaguered Law School Downsizing, Relocating to Downtown San Diego TowerJUNE 26, 2018  |  LOU HIRSH

About one month before the Coleman closure, Dream Center Education Holdings LLC, the Pittsburgh-based operator of several for-profit colleges, announced that it would stop accepting new students at 30 campuses nationwide. By year’s end, the company plans to close those locations of its Art Institutes, Argosy University and South University, with students being directed to other campuses or its online offerings.

The closing campuses are in 26 U.S. cities. Dream Center acquired the three school systems last year from Education Management Corp., which subsequently filed for Chapter 7 bankruptcy in Delaware.

“Since acquiring these schools in late 2017, we have been undergoing an ongoing process of evaluating the viability of certain campus-based programs relative to student needs and preferences in order to best support our students, both present and future,” Dream Center officials said in a recent statement.

Dream Center spokeswoman Anne Dean told CoStar News that the company leases its facilities and is “committed to working with building owner/operators” to transition out of its existing leases.

The Dream Center closings will leave several U.S. locations of all three of the affected schools operating. Argosy and South University offer degrees in areas such as business administration, psychology and criminal justice, while Art Institutes’ study areas include interior design, animation and culinary management.

During the past few years, several U.S. for-profit colleges and universities have experienced declining enrollments amid enhanced scrutiny by state governments and federal regulators, and many locations have shut down. For instance, the U.S. Department of Education investigated and sanctioned the for-profit Corinthian Colleges and ITT Technical Institute, both of which filed for bankruptcy and closed a total of more than 150 campuses across the country.

A 2017 Brookings Institution report said more nationwide closings and downsizings of for-profit colleges could be on the way, amid heightened government scrutiny and civil lawsuits over issues including financial aid disbursement, sales and recruiting practices, and preparation of students for job placement.

In high-demand U.S. markets, many of the real estate vacancies being created by closing schools could be filled by multiple types of tenants, including some involved in other educational realms.

Eric Knowles, senior vice president in the San Diego office of brokerage firm Kidder Mathews, said he would not be surprised to see the Coleman University space taken up by another type of teaching institution.

Knowles, whose focus includes education properties but who is not involved with the university sites being closed, said charter schools and multiple other domestic and international private educational organizations are also seeking out expansion spaces throughout Southern California, especially near the coast.

Educational entities, along with private developers, are among the parties expressing interest in the 72-acre site in San Diego’s Scripps Ranch area that was recently placed on the market by the non-profit Alliant Educational Foundation, with a $50 million asking price.

Knowles, whose firm is marketing that site, said he could not disclose who’s been looking at it, but the ultimate buyer could wind up sharing the acreage with current occupant Alliant International University, which is mulling a reconfiguration or relocation of its existing campus with an eye toward modernizing instructional offerings and on-site infrastructure.

Observers note that most of the Argosy University and other classroom sites being shuttered nationwide by Dream Center, as well as those shut down previously by other for-profit universities, are housed in leased office spaces, usually in close proximity to their student bases.

“The majority of those schools tend to be in leased space,” Knowles said. “They prefer to lease rather than own. It gives them a little more flexibility.”

For instance, in San Diego, CoStar records indicate that Argosy University since 2013 has leased just over 15,000 square feet on the first floor of the Pacific Center II office tower in Mission Valley, where it employs 15.

Just recently, the locally based, private and non-profit Thomas Jefferson School of Law downsized and announced it will soon relocate into 56,000 square feet of leased space in a downtown San Diego office tower, after its lender took possession of the $90 million, 178,000-square-foot East Village campus building that it had developed and occupied in 2011. The law school’s financial problems stemmed from issues including plunging enrollments and American Bar Association compliance matters, which school officials said are being addressed.

Another for-profit, nationwide provider based in San Diego, the publicly held Bridgepoint Education Inc., has been shedding personnel along with commercial space since 2010, when it occupied five locations spanning nearly 600,000 square feet in the San Diego market as its business boomed.

Following years of declining enrollments and government scrutiny of its operations, Bridgepoint and its Ashford University subsidiary now occupy about 274,000 square feet in one Kearny Mesa office building, according to CoStar records.

Ron Miller, a senior vice president in real estate brokerage Colliers International’s San Diego office, noted that large office spaces vacated by Bridgepoint in downtown San Diego and Rancho Bernardo were subsequently backfilled, by identity-verification technology provider Mitek Systems and defense contractor General Atomics, respectively.

“For-profit universities are typically housed in Class A buildings with contemporary layouts and located in neighborhoods with convenient transportation access and community amenities,” said Miller, who is focused on tenant services. “These attributes make former university spaces highly desirable for regional employers to attract and retain talent.”

Lou Hirsh, San Diego Market Reporter  CoStar Group   
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