Joining together, Catholics can compete: a proposal for merging five Philadelphia-area institutions

University Business, April, 2008 by Thomas C. Celli

FROM MEDIA STORIES TO conversations at cocktail parties, news has spread of the difficult situation facing private higher education and the decisions by officials at institutions such as Harvard, Princeton, and Swarthmore College (Pa.) to give away undergraduate educations to middle- and upper-middle-class families--essentially making the bachelor's degree free. Institutions with endowments of $400 million or more are being pressured by constituents and many in the public realm to give away the educations that those endowments are capable of providing. Congress may enter the fray soon.

Small, private liberal arts colleges face an increasingly bleak future without the endowments or the access to capital to compete for the best students. They will be relegated to pursuing prospective students with lower SAT scores and offering higher and higher discount rates in order to fill seats. I believe we will see many small, underendowed liberal arts colleges vanish from the landscape.

The idea at the center of this column emerged from an acquired knowledge of the value of certain assets at private liberal arts colleges that are being overlooked--that is, the value of their real estate. While this proposal centers on five institutions in suburban Philadelphia, the same idea could be applied in suburban Cleveland, rural Pennsylvania, or elsewhere where like-minded institutions are geographically close to one another and can follow patterns already established. Specifically, I want to propose the possible merger of five Catholic institutions in the northern suburbs of Philadelphia.

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Having accomplished planning work and architectural design work for several institutions in eastern Pennsylvania, those at my firm have come to understand the value of the real estate assets these suburbs provide. If Catholics are to continue providing a value-centered education and competing with the highly selective liberal arts colleges, then they must take steps now, while some are still financially healthy, to prepare quickly for growing competition.

Community colleges and state universities are leading the charge on price, while highly selective (rich) schools are making it free. What of those in the middle? What tuition and dropout repercussions will result from the subprime troubles of Sallie Mae and a few large commercial lenders?

MERGER POSSIBILITIES

Recently the 30-acre campus of one Philadelphia K-12 school was sold for $90 million. While this may seem an inflated price, real estate experts do say it was worth at least $30 million. Likewise, The American College in Bryn Mawr, Pa., which provides financial services education, sold a campus of 35 acres for $30 million. Just averaging these two institutions indicates that an acre of campus land in this area of Philadelphia is essentially worth $1 million.

An examination of the Catholic nature of the education offered by Chestnut Hill College, Rosemont College, Cabrini College, Gwynedd-Mercy College, and Immaculata University shows that all of these institutions, although founded by different Catholic congregations, have the same goal in mind--to provide excellence in Catholic higher education. My suggestion is that these institutions merge.

Their campus locations are such that from Immaculata in the west to Gwynedd-Mercy in the north is only a 25-minute drive, with the others all located along Route 202 or south of the Blue Route. The financial situations of the five institutions are varied, as are their academic strengths, but their merger and the sale of appropriate real estate assets, combined with current endowments, could produce a Catholic institution of serious size and economic power.

There is precedence for this idea. A few recent mergers have included Gannon University and Villa Marie College in Erie, Pa. in 1989, and the University of Detroit and Mercy College of Detroit merged in 1990, forming the University of Detroit Mercy.

If these five proposed institutions were to get together and form a "Catholic University of Northern Philadelphia" and sell, for example, three campuses (keeping two for facilities and residence halls), then, using our average cost per acre, they might realize a real estate sale of 259 acres x $1 million. Couple that with the five current total endowments of $54,272,406, and an institution with huge endowment assets could result. Obviously much study of specific values and facilities would be needed to bolster a decision on what to keep.

Beyond that, merged institutions have realized serious savings in office operations. One admissions office, not five, would be needed, and the same would be true for the registrar's office, the business office, and the other "back office" operations. Eight years ago nine private colleges in West Virginia merged their "back office" operations and saved more than $1 million per year, per institution, according to published sources. Today that figure would be considerably larger. Is it time for private higher ed to start thinking more like a business?