As someone who was an Emerson student fairly recently, this is the least surprising thing I've heard all day.
I walked past the Colonial (it's in the middle of the block that comprises most of the Emerson campus) thousands of times and can only remember two different shows playing there in more than four years. It was dark so frequently that I thought it had already been closed.
I highly, highly doubt that the building will be demolished, for the following reasons:
There is currently a dorm that is pretty much on top of and under the theater. Gutting that property would mean losing, at least temporarily, all the housing and other facilities currently in the Colonial building.
Emerson is currently doing major renovation work on buildings further down the same block, and until that project is finished, they definitely won't be starting any major work on the Colonial.
My guess is that it will continue to sit there dark as it has for much of the last five years, and in a few years, once Emerson's current project is completed, we'll start hearing about the future of the Colonial. Emerson has already renovated and re-opened two sizable theaters in the last 15 years (although both of those happened under the previous president of the college), and my gut feeling is that if they planned to convert the Colonial from a theater to use for some other purpose, they would have done it five years ago after they finished renovating the Paramount, and would never have signed the lease with Citi in the first place.