COVID-19's Uncertainty Adds More Challenges to Struggling Student Housing Market

An already struggling student housing submarket could be exasperated if universities don’t reopen their campuses for the 2020-21 school year, according to Trepp.

To be sure, the student housing sector was struggling well before COVID-19, Trepp wrote in a new report.

Compared to other multifamily sectors, student housing was always deemed “riskier” because of its short-term leases, customary high turnover and significant upkeep, Trepp said. Student housing property loan delinquency rates are higher on average than other multifamily units. Notably, student housing properties’ delinquency rates have increased from April 2016′s 4.13% to 10.77% in April 2020, which wasn’t a result of colleges shutting down in-person classes in mid-March and April, Trepp noted.

Instead, in recent years the market’s underperformance was propelled by overbuilding and stiff competition that created an “amenity arms race” that left some properties outdated 10 years after construction, Trepp wrote.

While student housing property owners were already struggling, the contagious coronavirus will throw uncertainty into on-campus living. Student housing property owners already have a preview of how COVID-19 can impact their business, Trepp noted, and the market’s outlook doesn’t look good.

The A/B% rate, which is when a loan is in its grace period or 30 days behind payment, for student housing properties jumped from 1.25% in March 2020 to 4.72% in April, Trepp reported.

So far, some of the top A/B student housing properties are Texas’ SkyLoft Austin; UniSquare Portfolio in Pennsylvania; Arizona’s Sol y Luna; and the Buckingman property in Chicago, according to Trepp.

As universities reconsider reopening its campuses or deploying remote teaching, the uncertainty regarding when announcements will be made makes executing leasing activities more challenging, Trepp wrote.

States’ differing lock down provisions will also likely impact student housing properties with varying levels of severity, Trepp noted. To be sure, Trepp joins others that say COVID-19 will impact the student housing industry.

In April, Pierce Education Properties CEO and president Fred Pierce told GlobeSt.com student housing deals were likely paused for 90 days until shelter-in-place and social distancing restrictions were lifted. Still, coronavirus hasn’t halted every student housing development.

On Wednesday, GlobeSt.com reported FourPoint Capital Markets arranged construction financing for the development of a 76-bed, three-story student housing building near the University of Texas at Austin. 

COVID-19 also isn’t halting the opening of newly-built student housing before the start of the fall 2020 semester. The One at University City, an 886-unit housing community for Florida International University students, is still set to open on July 30, GlobeSt reports.