Coronavirus Tests Strength of Student Housing

Student Housing Property Loan Forbearances and Delinquencies Are Running Disproportionately High Compared to Other Sectors.

Florida Gulf Coast University is one of many institutions dealing with declining student housing revenues due to the coronavirus. (Florida Gulf Coast University)Florida Gulf Coast University is one of many institutions dealing with declining student housing revenues due to the coronavirus. (Florida Gulf Coast University)

The growing number of securitized loans that are deliquent or in forbearance is showing a disproportionate dollar amount backing student housing properties.

The sector has been weakening for several years as new buildings continue to open even as enrollments decline. Then came the coronavirus pandemic and the government-mandated bans on mass gatherings, including college classes. Students vacated rented rooms in droves to return home and complete their semester.

Social-distancing measures enacted in March remain in effect on many campuses or are recommended for fall. Some colleges have already announced plans for continued online learning, including the California State University system, the largest collection of four-year higher education institutions in the country. These decisions leave the potential for a quick rebound in the student housing property sector in doubt, according to DBRS Morningstar, the bond rating agency.

“Should full-time online learning continue into the fall 2020 semester for most higher-education institutions, student housing properties may not fully recover until fall 2022, which supports the sentiment that full economic recovery will take years rather than months and could affect more than $13.33 billion in student housing loans packaged in commercial mortgage-backed securities,” according to new analysis from DBRS Morningstar.

In the private commercial mortgage-backed securities market, student housing loan delinquency rates have climbed steadily for the past five years from an April 2016 reading of 4.13% to 10.77% in April this year, according to CMBS data provider Trepp. That’s the highest delinquency rate of any property sector. This past week, Fannie Mae and Freddie Mac, reported that combined they have granted a three-month payment forbearance to more than $1 billion in student housing loans. That amounts to a little more than 11% of the total $9 billion they have in forbearance. Though that percentage may sound modest, student housing overall makes up a small percentage of Fannie and Freddie’s outstanding loan balances: 4% for Fannie Mae and just 2% of Freddie Mac’s new business in 2019.

The issue spills over into the real estate investment trust market as well. American Campus Communities, a publicly traded REIT and the country’s biggest player in student housing, presented new data on the fall outlook this week at the National Association of Real Estate Investment Trust’s annual REITWeek conference, which was held online this year.

After experiencing technical problems getting his virtual presentation launched, Bill Bayless, chief executive of American Campus Communities, said, “You just got a wonderful experience of why online remote education is never a threat to on-campus, in-person classes.”

The Chronicle of Higher Education is keeping a tally of colleges’ plans for reopening in the fall. About 66% are planning in-person learning, 9% haven’t decided, 7% are planning online only, and the remainder are planning a combination of options.

Whether colleges and universities are planning in-person or online learning, or a mix of both, the reality is students are still signing leases for next fall, Bayless said.

As of Sunday, ACC’s owned portfolio was 82.6% preleased, compared to 84.9% preleased by the same date last year, according to Bayless.

Still, Bayless estimates that campus enrollments in ACC’s 68 markets across the country could see 91,000 fewer students needing on- or near-campus housing. With more classes being held online, the need for being close to campus diminishes, and students could find more suitable off-campus housing options.

Fewer students with less of a need for on-campus housing means less revenue for on-campus student housing operators across the country such as Harrison Street Real Estate Capital, The Scion Group, Greystar and The Collier Cos., which make up the next four largest owners of properties, respectively, after ACC, according to the National Multifamily Housing Council.

California Baptist University in Riverside, California, is planning in-person classes this fall. The private institution prepared housing revenue estimates for what would happen if numbers were down by 1,000 students. It estimated a reduction in housing revenue of $3.25 million across available campus housing options.

Florida Gulf Coast University is considering various plans for reopening for the fall semester including remote and on-campus instruction as well as alternatives for student housing. In the event some level of social distancing is enacted affecting student housing, occupancy levels could be reduced, the university said.

Florida Gulf Coast, located in Fort Myers, Florida, has reported it will not collect estimated summer housing rental revenues of $900,000. Its annual housing debt service payments are about $12 million.

“Further, enrollment for the upcoming academic year could substantially decline should students take a gap year if campuses remain closed and universities do not adjust their tuition, as full-time online education may have less value for students who seek the social interactions associated with campus life,” DBRS Morningstar analysts noted.