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pmmeaney
06-08-09, 01:53 PM
I recently saw that Dartmouth Collegeís band rating was reduced right at the time that it went to the markets to raise cash. From internal Dartmouth memos, a lot of this money was needed to fund basic expenses. My basic guess is that with a roughly 25% (from roughly $3.6B to $2.7B) haircut in their endowment, they are quite cash-strapped. Various sources have told me that a high percentage of their investments are tied up in private equity investments that tend to be quite illiquid. Like many ivy league institutions, they have been accustomed to using a good chunk of their endowment income to finance general expenses. This is going to get expensive soon. Dartmouth has taken early, unprecedented moves to tighten expenses Ė even layoffs Ė to get its expenses down. In the Hanover region, it (along with Dartmouth Hitchcock Medical Center) is a major employer in the area.

The Hanover, NH area has a fairly interesting demographic. The town has a very large retirement community (once rated the best place to retire to in the US by Modern Maturity Magazine). It also has quite a few trust-babies raising families. In addition, it also seems to be somewhat of a Wall Street satellite with a whole slew of investment offices of Morgan Stanley, Wachovia, Smith Barney, etc. This concentration probably has a lot to do with the proximity to the Tuck Business School at Dartmouth. My guess is that this interesting concentration has previously been a major engine of the significant real estate bubble in this area (heavily concentrated in Hanover and a few surrounding towns). It seems to me that this dynamic is coming under a lot of pressure right now. I follow the real estate sales in Hanover with data I take directly from the town hall records (the local real estate company reports on the state of the real estate market in a not-to-be-believed monthly newsletter). I donít know if Iíll be able to download this to this posting, but Iíve plotted a rolling 12 month total of single family house sales in Hanover for roughly the last 7 years. This graph allows me to eliminate any seasonal variations but also tends to be a bit of lagging indicator. Basically it shows a large peak around March 2006 which people have earlier attributed to the Tuck student flipping phenomenon where the business school students bought houses when they arrived and sold them 2 years later at large profits. Iíve heard stories of some funding good portions of their tuition with the proceeds. After this there was a pretty good drop off to a low of 93 sales per year (from 120) in Feb 2007 and then came back to a new peak of 111 in October 2007. However, the latest trend is decidedly down. 78 for April 2009 with a definite steep down slope. The associated median housing prices have seemed to stalled at a level just over $500K, but my guess is theyíre headed for a fall.



My question is whether this dynamic is being played out in similar fashion in other affluent, college-town settings? There have been various platitudes re-assuring college employees that Dartmouthís bond rating is still very high compared to our peers and that the College is in good financial position. My guess is that the bond rating agencies (often late in responding to facts on the ground) know something that the college is not willing to admit. This along with the general recession and dynamic of the local economy is putting some pretty serious pressure on the locals. My personal bet has been to rent a house for the past few years and am more convinced that Hanoverís ability to pretend that the housing crash does not relate to them is purely wishful thinking. I love listening to some of the local real estate agent opine on how some nice local house has a lot of potential, but itís biggest weakness is that the kitchen is so 90ís. My guess is that this means it doesnít have granite counter tops and stainless steel appliances. Iíd be curious to hear stories about similar towns.

metalman
06-08-09, 03:41 PM
you can embed the chart using the landscape thingy...

http://www.itulip.com/forums/attachment.php?attachmentid=1704&d=1244483590

Basil
06-08-09, 04:01 PM
I recently saw that Dartmouth Collegeís band rating was reduced right at the time that it went to the markets to raise cash. From internal Dartmouth memos, a lot of this money was needed to fund basic expenses. My basic guess is that with a roughly 25% (from roughly $3.6B to $2.7B) haircut in their endowment, they are quite cash-strapped. Various sources have told me that a high percentage of their investments are tied up in private equity investments that tend to be quite illiquid. Like many ivy league institutions, they have been accustomed to using a good chunk of their endowment income to finance general expenses. This is going to get expensive soon. Dartmouth has taken early, unprecedented moves to tighten expenses Ė even layoffs Ė to get its expenses down. In the Hanover region, it (along with Dartmouth Hitchcock Medical Center) is a major employer in the area.

The Hanover, NH area has a fairly interesting demographic. The town has a very large retirement community (once rated the best place to retire to in the US by Modern Maturity Magazine). It also has quite a few trust-babies raising families. In addition, it also seems to be somewhat of a Wall Street satellite with a whole slew of investment offices of Morgan Stanley, Wachovia, Smith Barney, etc. This concentration probably has a lot to do with the proximity to the Tuck Business School at Dartmouth. My guess is that this interesting concentration has previously been a major engine of the significant real estate bubble in this area (heavily concentrated in Hanover and a few surrounding towns). It seems to me that this dynamic is coming under a lot of pressure right now. I follow the real estate sales in Hanover with data I take directly from the town hall records (the local real estate company reports on the state of the real estate market in a not-to-be-believed monthly newsletter). I donít know if Iíll be able to download this to this posting, but Iíve plotted a rolling 12 month total of single family house sales in Hanover for roughly the last 7 years. This graph allows me to eliminate any seasonal variations but also tends to be a bit of lagging indicator. Basically it shows a large peak around March 2006 which people have earlier attributed to the Tuck student flipping phenomenon where the business school students bought houses when they arrived and sold them 2 years later at large profits. Iíve heard stories of some funding good portions of their tuition with the proceeds. After this there was a pretty good drop off to a low of 93 sales per year (from 120) in Feb 2007 and then came back to a new peak of 111 in October 2007. However, the latest trend is decidedly down. 78 for April 2009 with a definite steep down slope. The associated median housing prices have seemed to stalled at a level just over $500K, but my guess is theyíre headed for a fall.



My question is whether this dynamic is being played out in similar fashion in other affluent, college-town settings? There have been various platitudes re-assuring college employees that Dartmouthís bond rating is still very high compared to our peers and that the College is in good financial position. My guess is that the bond rating agencies (often late in responding to facts on the ground) know something that the college is not willing to admit. This along with the general recession and dynamic of the local economy is putting some pretty serious pressure on the locals. My personal bet has been to rent a house for the past few years and am more convinced that Hanoverís ability to pretend that the housing crash does not relate to them is purely wishful thinking. I love listening to some of the local real estate agent opine on how some nice local house has a lot of potential, but itís biggest weakness is that the kitchen is so 90ís. My guess is that this means it doesnít have granite counter tops and stainless steel appliances. Iíd be curious to hear stories about similar towns.

I cannot speak to direct experience with any college/university towns, but I can speak from the view inside academia. For some schools it is very bad, and given the speed with which academia tends to react, it will get worse. They do not have to post quarterly earnings, so they can keep lying a little bit longer. I know of only one major school that has taken difficult steps to increase its student to teacher ratioóperhaps the only thing higher-ed can do to make it through in the long haul.

A friend of mine does pro-bono financial advising for several universities and has said that they are in for a world of hurt. Many bought into the low risk, high returns mumbo jumbo of the FIRE economy and, according to her, will see their endowments sliced by close to 50% when all is said and done.

Add to this the fact that far fewer families can afford the tuitions these days, and things could get very, very bad for local economies that rely heavily upon a private institution of higher learning.

BiscayneSunrise
06-08-09, 07:36 PM
Add to this the fact that far fewer families can afford the tuitions these days, and things could get very, very bad for local economies that rely heavily upon a private institution of higher learning.

We had a discussion here a couple years ago about the value of a high cost education. A pedigree from a top university is valuable for many reasons.

Universities knew they had a captive market and were able to continue raising tuition much faster than inflation. Families mortgaged themselves to make life better for their children.

Are those days over? Will internet based universities come to the fore as part of our transformational depression? Will brick and mortar universities be required to become more cost competitive?

peakishmael
06-08-09, 08:19 PM
We had a discussion here a couple years ago about the value of a high cost education. A pedigree from a top university is valuable for many reasons.

Universities knew they had a captive market and were able to continue raising tuition much faster than inflation. Families mortgaged themselves to make life better for their children.

Are those days over? Will internet based universities come to the fore as part of our transformational depression? Will brick and mortar universities be required to become more cost competitive?

From what I read, private universities are in a world of hurt. Community colleges and state universities are surviving better, on account of large numbers of kids who can't find jobs and are looking for the cheapest schools.

jk
06-08-09, 10:34 PM
harvard was down as much as 40% on its endowment, rumor has it. part of that was illiquid private placements, so perhaps they've recovered some. yale was down about 30% iirc, and has cancelled all planned construction projects, although it is proceeding with those which have already been begun. a hiring freeze and mandatory reduction in expenses by department is hurting the local enconomy at the margin, but on the whole i think the universities are stabilizing economic forces in their communities.

Basil
06-08-09, 11:10 PM
We had a discussion here a couple years ago about the value of a high cost education. A pedigree from a top university is valuable for many reasons.

Universities knew they had a captive market and were able to continue raising tuition much faster than inflation. Families mortgaged themselves to make life better for their children.

Are those days over? Will internet based universities come to the fore as part of our transformational depression? Will brick and mortar universities be required to become more cost competitive?

IMHO, schools will need to adjust to the realities out there. But it will be much like the business world: some will fail; some will be absorbed by others; some will join forces. Those with sound management and a unique product will come through. Many run of the mill colleges that have just been riding the wave will go. If things get as bad as some here believe, a few storied schools may well go under.

There will be some competition from internet based universities, but one cannot receive an entire education over the internet, and many disciplines cannot be taught well. There is also the factor of human interaction, which is often transformational for undergraduates and graduates alike, that simply cannot be replaced.