Illinois Tops US For Student Housing Loan Distress
The state's percentage of student housing loans that are more than 30 days delinquent clocking in at more than twice the national average.
Illinois tops the list for student housing loan distress, according to a new analysis from Trepp, with the percentage of loans that are more than 30 days delinquent clocking in at more than twice the national average.
Illnois also ranks high in the low DSCR and occupancy categories, says Trepp’s Stephen Buschbom. He’s keeping an eye on the $26 million One North and One South loan in Champaign.
“The financials show that the struggle is not just COVID related as DSCR has been negative since 2019,” Buschbom writes. “Per the watchlist comments, the borrower has invested over $4M to renovate the property, but leasing has been extremely difficult since there are several other new student housing communities that began to aggressively compete for a reduced share of tenants, resulting from a steep decline in international students that were historically a major demand driver in this market.”
Illinois is followed by Tennessee, which has a delinquency rate more than five times the national average. Buschbom points to a loan that’s REO in Johnson Cit: Monarch 815 at East Tennessee State ($30 million).
“The REO status report comments indicate the property is on track to be stabilized after numerous costly capital repairs and after years of struggle to work through a significant backlog of issues, not the least of which was completing foreclosing proceedings against the initial borrower (servicer comments indicate red flags starting just 2 years after the loan was securitized),” he says.
Louisiana comes in third, with a small sample size. East Baton Rouge’s University Edge, a $23.4M, accounts for almost one-quarter of the balance of loans with a DSCR < 1, Buschbom says. The better-performing Park Place Baton Rouge is also on the servicer’s watchlist. Louisiana is followed by Missouri, where the Lindell Portfolio ($46.6M) has been on the servicer watchlist since November 2017 and “has struggled financially for years.”
Rounding out the top five is Ohio, where a University Edge loan was transferred to the special servicer in March 2022 due to payment default.
“A modification proposal was subsequently made in July, but in September the borrower indicated that the proposal will not work and that they would like to cooperate in the sale of the asset,” Buschbom notes.
Texas, Connecticut, Georgia, Michigan, and Kansas follow to finish the top 10 states in Trepp’s ranking.
“Only time will tell if some of the recurring stress themes that plagued student housing loans in recent years resurface given that this sub-sector is fiercely competitive and requires highly diligent property management as the seasonal leasing and capital intense nature of this beast (high turnover costs) can get out of hand quickly, especially when inflationary pressure lingers in the background,” Buschbom says.