Property Grunt

Tuesday, April 29, 2008

All eyes on NYU

Sexton and NYU should heed 6:10 and on of this clip.

I heard on the radio that NYU was jacking up tuition and read on Gothamist the full details of Sexton’s grand tuition hike of 6 % which tops out to 50K a year.

Sexton’s explanation for this fiscal attack on student’s pocket books is the following.

"Many colleges and universities against which we compete to attract faculty and students have endowment resources per student many times larger," he wrote in an e-mail to the faculty.

The school is not insensitive to the financial strain. It plans a 12 percent financial aid boost for the neediest students.

But that's still not as much help as other private colleges, such as Harvard, are giving out. The Ivy League school plans to actually cut tuition for low-income students.

"We are not in a position to match these institutions, as much as we might wish that all endowments are created equal," Sexton wrote.
The cost of NYU certainly puts it in league with Ivy-level tuition. Columbia University charges students $35,516, while Harvard charges $31,456.

The reason why the NYU endowment is so low is probably because he has been blowing all the money like a drunken sailor on shore leave.

According to NY Magazine

Since taking over the university’s presidency seven years ago, Sexton has raised $2.5 billion—which amounts to a million dollars a day. Rather than reserving it for the school’s endowment, he’s spent the money aggressively, going on another hiring spree to increase the university’s faculty by almost 20 percent. He is intent on growing the New York campus by 6 million square feet, and when he realized that NYU needed an engineering school to become a top-ranked university, he went out and bought one: Polytechnic University, the 150-year-old Brooklyn institution. The New York Times asked Sexton in 2003 if his early attempts at raising the university’s profile were about marketing. “Yes,” he responded. “Mythology, salesmanship, branding—it’s all the same thing … The greatest power of a university president is to be the Homer of the community.”

In my opinion, he was doing the right thing. In order to build up the academic equity of NYU, Mr. Sexton had to blow tons of cash to attract the best talent and build the facilities to make it more valuable on the college market.

I knew his spending spree was over when Sexton implemented a hiring freeze for the school.

However, what bothers me is why these events occurred in the first place. College endowments are run like wall street firms. Schools like Harvard Yale and Stanford can afford to lower tuition because they do not need to rely on their students for a cash flow. As I stated before in a previous entry, the elite schools have actually lowered the amount of acceptances because of their endowments.

Now NYU raising tuition is nothing new. However the circumstances of this particular hike have raised an eyebrow or two.

Now what I am about to present is pure speculation, however when you see the pieces put together, it does make a lot of sense.

Let’s take a look at some of NYU’s trustees

Laurence D. Fink
Chairman & Chief Executive Officer
BlackRock, Inc.

Mr. Fink’s company has been in the news due to higher profits and an effort to help banks.

Richard A. Grasso
Former Chairman & Chief Executive Officer
New York Stock Exchange

Richard Grasso is the former CEO of the New York Stock Exchange and of course we all know why he isn’t the current one.

E. John Rosenwald, Jr.
Vice Chairman
Bear, Stearns & Co. Inc.

Mr. Rosenwald is a prominent figure at Bear Stearns and we know how that movie ended.

William R. Salomon
Honorary Chairman

Nuff said.

These are individuals who have played some type of role, positive or negative, in Wall Street and the world financial markets. As trustees of NYU they obviously have a lot of influence on where NYU’s money goes. And I wouldn’t be surprised if that influence has resulted in NYU getting hurt with the rest of the market.

In fact there is evidence to suggest that is the case.

"The story of NYU's endowment management over the past two decades vividly illustrates the dangers of implementing poorly founded investment strategies," said David Swensen, chief investment officer at Yale University.

Perhaps the hiring freeze and tuition hike is Sexton’s way of covering those losses, which is understandable.

But let’s take this further and I admit that this is where it gets a little outlandish but if you think about it, it is plausible and downright creepy.

The trustees that I have presented are prominent figures in their networks. If these gentlemen aren’t hurting, well then they know someone who is. Right now cash is king and credit is dead. So these Wall Street firms need cash infusions to keep them going which are hard to come by especially during these times. That is unless you control a source of liquidity that can pretty much draw blood from a stone.

Do you see where I am going with this?

Perhaps the Sexton’s hiring freeze and tuition hike is not really a response to higher operating costs or a smaller endowment. But in fact it is to create an unofficial cash trough for NYU’s allies on Wall Street who are in dire need of funds. In other words, Sexton is pulling a Bernanke. If you think about it college students are the best source of cash because they have to commit to 4 years of school and it is a tremendous hassle to transfer. And NYU students eventually find a way to cover their costs even it means selling out their future or they leave. If the true reason for this tuition hike is to bailout NYU's buddies, then you are going to have a lot furious NYU students. That is if they are not pissed off now.

Now I am not saying that the trustees themselves are pocketing NYU money. I am sure that is illegal and there are measures in place to prevent that. But I think there are loopholes for them to dole out the money to more appreciative parties.

Now obviously a lot of you are going to say I'm nuts saying that Sexton is using the NYU tuition hike to create a bailout fund similar to the Fed. Then you are going to wonder if I have been seeing black helicopters and cow mutilations. But bear with me for a moment and ask yourselves these questions.

1.Is all this money going to the students?
2.What has NYU’s endowment invested in and what do they plan on investing in the future?

In other words, where is the money trail and where does it lead? That is the only way we will know if Sexton’s reasons are truly justified.

That is not going to happen anytime soon because NYU keeps its finances under very tight security. However I was able to come up with an interesting site that sheds some light on NYU’s finances and it is really nuts, particularly in regards to its debt load.

Which brings me to my next point. This tuition hike could probably be the worst thing for NYU. First of all the cost for college is skyrocketing to the point it is not unheard for people to be in debt for the rest of their lives. We are also entering a recession and the entire country is starting to take a strong look at their expenses, especially their college costs. Even if they are accepted to NYU, students might choose another school because of the cost alone. Which brings me to a personal anecdote.

A couple of years ago a family member of mine was thinking about going to NYU even though he was already accepted to a good school on the West Coast. He felt this way because some of his high school friends were bragging about going to NYU and how they were going to experience New York City. He felt like he was missing out on something by not attending NYU. I told him that he was not missing anything, that he was better off staying on the west coast because his friends were going to encounter higher living expenses, higher tuition and resulting in little added value for their money. Besides, he had plenty of time to live in New York after graduation. So he stayed on the west coast and has never regretted his decision.

Now of course one could argue that NYU has a strong brand name. But obviously that added value is an illusion since you can get a cheaper education at an Ivy League and I don’t care how well NYU is rated, it is no Ivy League. Hell, it’s not even a Williams or a Swarthmore.

Now if I was running the SUNY system, I would be laughing with glee because this presents a ripe opportunity to cherry pick from NYU’s applicant pool. You see, the students who can barely afford an NYU education are definitely going to be able to afford a SUNY education in spades. In fact they may not have to apply for financial aid. And the SUNY schools are no joke. For instance, Stonybrook has some very well known science programs and the rest of the schools are known to be academically sound.

And SUNY would also benefit from the cash rich foreign student demographic. In a recent article in NYT, it presented the story of an elite school and here’s a quote that is of great interest.

“Going to U.S. universities has become like a huge fad in Korean society, and the Ivy League names — Harvard, Yale, Princeton — have really struck a nerve,” said Victoria Kim, who attended Daewon and graduated from Harvard last June.

Now according to Korean standards, there are a lot of stupid rich kids in Korea. I know this for a fact because I have met them. But according to American standards these kids are more than qualified for the SUNY schools. Even though it is not an Ivy League it is still an American university and it is cheap as hell. And Koreans are no different than any other race because they love a bargain. They can get the prestige of an American school at the fraction of the cost, especially with the dollar being so weak. All colleges love foreign students, because they are usually not strapped for cash and they do not complicate things with financial aid since foreign students can't qualify for it.

It is possible that NYU could see a huge drain in their applicant pool, resulting in a huge hit in their cash flow. And if that occurred it would not be inconceivable for NYU to liquidate some its real estate holdings in order to stay out of the red.

As I said before, this is all speculation on my part. And we are not going to know how it all pans out for at least the next 5 years. However, I would recommend with whatever choice you make, look at the numbers. Be aware if you do take financial aid, that unless you get high paying job after college, you are going to be in debt for a long time. And just like I told my relative, even if you do not go to college in New York City, there is plenty of time after graduation to be in New York.