Abandoned campuses are straining the once thriving student housing sector


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“Stay at home” orders and virtual classrooms posed serious questions for the once thriving student housing market. (Photo: University of North Carolina at Chapel Hill via Getty)

Students from the University of North Carolina in Chapel Hill panicked for several days in August.

The Covid-19 cases erupted in dormitories and fraternal homes at the state’s flagship university, which quickly began to pull the back of teaching on campus and focus on online courses.

It is a chain of events taking place at many public and private universities across the country Our lady and the state of Michigan are also forced to attend teaching on campus.

This forced adoption of distance learning, combined with a precarious federal policy towards international students, has raised serious questions about the once thriving student housing market and is leading higher education institutions to rethink their vast real estate portfolios. If student numbers continue to decline, universities could prepare to sell off their assets en masse. And with declining rents and rising delinquency, according to some industry experts, the student housing sector is on the lookout for waves of emergency.

(Click to enlarge)

(Click to enlarge)

“People are just waiting to be deployed,” said Tim Bradley, whose company, TSB Capital Advisors, is funding student housing projects. “You’ll hear most of the bloodshed in the next two months.”

Humanities

In March, around the time COVID-19 was declared a pandemic, CUNY’s board of directors used the Real Estate Solutions Group to value its 300 building portfolios.

Brian Obergfell, the lawyer who chairs the planning and management of the CUNY facility, only confirmed that CUNY could sell its property and declined another comment.

“People are just waiting for dislocations.” Over the next two months, you will hear most of the bloodshed. “

Tim Bradley, TSB Capital Advisors

Kathryn Wylde, general manager of the Partnership for New York City’s pro-business group, noted that “public universities are constantly struggling” for money. And because their budgets come from state and city budgets, which are shrinking after the pandemic, they are now “trying even harder.”

Universities are among the largest landlords in New York and compete with top development companies and dynastic companies. NYU owns 217 properties totaling 14.65 million square feet, while Columbia University owns 279 properties totaling 11.4 million square feet, according to analysis The real solution. Columbia is also in the process of transforming West Harlem and is using starchitect Renzo Piano to develop his mega-project Manhattanville.

However, industry insiders say it is unlikely that she and other universities with large subsidies will be forced to sell real estate.

“I don’t think there’s a special need for cash with NYU or Colombia,” said Brett Siegel, who heads the capital markets and investment sales division of Newmark Knight Frank. The NYU did not respond to requests for comment, while a Colombian spokesman declined to comment.

Rather, they are private schools with smaller foundations that could cough up property.

It’s Siegel marketing site of Pace University development in lower Manhattan near the Brooklyn Bridge, which includes an 18-story tower with dormitories, classrooms, and a library. A spokesman for Pace said the university planned to sell before the pandemic.

“Like most with a large real estate footprint,” the spokesman said, “we evaluate our real estate needs and the costs associated with them.”

Seth Pinsky, CEO of the non-profit 92nd Street Y and former head of the New York Society for Economic Development, said it was difficult for universities to identify asset strategies due to a lack of long-standing ambiguity about distance learning.

“The open question that has not been answered exactly is: How permanent are these changes?” he said.

Another four years

Unity College President Melik Peter Khoury is considering the future of colleges in a remote and wooded area of ​​central Maine.

The school avoided bankruptcy in the early 1990s, but Khoury says it is on firmer ground today. It aims to find out if four years of university experience in academia is still viable.

Even before Covid, “there was a clear drop in household enrollment if you are not a Level 1 school,” he said.

About a third of the four-year-old private universities analyzed are at risk in the next six years, according to Edmit, a Boston university counseling center.

Unity is investigating the sale of its 240-acre central campus, a move it has demanded from students and alumni. Sales have already begun for other universities facing financial pressures.

According to the North American state of New York, Nyack College recently sent a request to the New York Attorney General for the sale of a campus of 107 acres of Hasidic yeshiva for about $ 45 million, according to the Rockland County Business Journal. And in July, a non-profit charter networking organization reportedly entered into an agreement to buy the Marlboro College campus in southern Vermont for $ 225,000 and assumed debt obligations of $ 1.5 million.

Tracks of misery

Student living is as much a part of the college experience as pizza in the dining room and door handle socks.

In the last decade, developers have rushed into the sector, in some cases competing with university campus housing by offering state-of-the-art luxury apartments with swimming pools, gyms and solariums. Among their most lucrative goals were foreign students.

47M SQ. FT.

According to a recent TRD analysis, a number of private real estate colleges and universities are held in New York

But as health concerns rise in American universities, interest from foreign students is waning. Anxiety also increased when the Trump administration announced in July that it would require foreign students to leave the country if their colleges taught entirely online. The government eventually canceled its plan, but in late August, Secretary of State Mike Pompeo said during an interview that President Trump was trying to restrict Chinese students from studying in the United States.

The international enrollment of students at American universities increased by only 0.05 percent in the 2018 to 2019 school year, compared to 7.1 percent between 2015 and 2016, before Trump took office, according to the Institute for International Education.

“The overall theme of the administration is to place more emphasis on American citizens than overseas competitors,” said Joe Shmigelsky, assistant vice president at DBRS Morningstar.

Industry sources say that investors were originally attracted to the rates of the student housing market ceiling – a metric that measures the rate of return on investment in commercial real estate. Cap rates for student housing assets at non-Power 5 Division I universities averaged 5.43 percent in the first half of 2019, well below the CBRE. 5.83 percent for universities other than Division I..

Before the pandemic, there were signs of anxiety in student accommodation, mainly due to oversupply. Since 2010, developers have built more than 400,000 new beds across the country, according to the National Council for Multi-Family Housing.

“We believe that the increase in supply has provided too much competition between student accommodation facilities, leading to concessions,” Shmigelsky said.

Many of these student homeowners, which flooded the market, turned to commercial mortgage-backed mortgages for financing. Between 2016 and 2019, the securitization of student housing loans averaged 87 loans per year, which is $ 2.0 billion each year, according to DBRS Morningstar.

CMBS loans are considered riskier than most other commercial mortgages because they have agreements with bondholders that complicate loan restructuring.

For CMBS loans supported by NGOs, the crime rate for student housing loans rose to a record high of 13.7 percent in July 2020, well above 2.2 percent for all other multi-family assets, according to Trepp.

Among the projects that can be watched are, for example, Wolf Creek Apartments, nearly 1,400 leased properties in Raleigh, home to students from North Carolina State University. According to Trepp, property occupancy fell from about 90 percent in 2016 to about 60 percent at the end of 2019 because tenants relaxed and did not renew leases.

The owner of the property, VIE Management, remains current on debt repayment, but the home loan is now on Trepp’s watchlist due to fears of possible default.

The VIE administration did not return a request for comment.

Another animal

Despite these challenges, developers and students’ housing brokers have stated that leasing remains strong in the autumn semester.

“Students want to have.” [college] the experience they imagine. I’m pretty sure a lot of college students didn’t attend their classes anyway. “

Ryan Freedman, Corigin Real Estate Group

James Jago, CEO of Boca Raton-based Pebb Capital, said leasing rates were about 82 percent in July, up from 85.5 percent a year ago. Pebb is developing a 153-bed student apartment building with 80 units on Morningside Heights, opposite Columbia University.

“We’re still bull,” Jago said. “It’s pretty good nationwide.”

In mid-September, Bloomberg launched the private equity company TPG is in discussions buy a portfolio of student housing from REIT Preferred Apartment Communities in an agreement that would value the property at $ 480 million.

Ryan Freedman, whose Corigin company has invested in five student housing projects around the NYU campus in Manhattan, said schools moving to 100 percent virtual classrooms will certainly see a decline in student occupancy. But for schools that provide part online and part classes on site, Freedman believes students will still find their way to campus.

“Students want to have.” [college] experience they imagine, “he said. “I’m pretty sure a lot of university students didn’t attend their classes anyway.” He declined to provide data on the occupancy of Corigin’s student housing portfolio, which includes more than 2,600 beds.

Not all investors are so optimistic about the sector. The lone publicly traded student real estate company American Campus Communities has seen a 17 percent drop in stock prices since March. And Preferred Housing, which is heavily exposed to student housing, has seen shares fall more than 50 percent this year, compared to 12 percent in the U.S. REIT sector, according to Bloomberg.

Operators of student flats in larger cities also have to deal with greater competition from flats and flats, which are rented at discounts due to the pandemic. In Manhattan vacancies for rent reached 4.33 percent in July, a record since Douglas Elliman began tracking the market 14 years ago.

In places like Miami, students could look at renting apartments and take advantage of excess inventory, according to Miami-based real estate consultancy CondoVultures.

And while some investors have placed student housing in the same bucket as multiple families, they are both different animals because of how leases are signed.

“Ceiling rates have become more family-friendly in the last decade, but student housing is a riskier asset for many reasons, as students usually all sign leases at about the same time,” said Billy Meyer, executive director of real estate lending at Columbia Pacific Advisors. Seattle.

“You are either good or bad,” he added.


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