- S&P Global Ratings raised two ratings and revised five outlooks to positive on U.S. privatized student housing issuers in the past year, as many projects' operations rebounded to pre-pandemic levels.
- Occupancy continues to increase slowly as more projects near full capacity.
- Financial operations have stabilized, given increases in rental revenue and occupancy since the onset of the pandemic in early 2020.
- As of fiscal year-end 2022, two projects have underfunded debt service reserve funds, but most have increased their reserves.
Since March 2020, the privatized student housing sector has been pressured by pandemic-related closures of schools and projects and de-densification requirements, bad debt expenses from students who were unable to pay rent, and rising costs associated with inflation and a more demanding labor market. However, although projects struggled financially given their limited revenue streams, many also received external support from their associated universities, as schools passed on pandemic-related stimulus funds to cover lost rent or fulfilled existing support agreements. Over the past year, densification restrictions and extraordinary aid have been phased out, and projects are settling back into higher occupancy rates and normalized operations. However, the looming stress of rising costs remains a risk.
The sector has continued to stabilize as the acute effects of the pandemic, such as closed campuses, de-densification, and missed student rent payments ease. However, the past year has also seen a resetting of elevated financial performance for higher rated projects as temporary support from their related universities is reduced. Although occupancy steadily recovered among projects in lower rating categories in fall 2022, albeit more slowly than in the 'A' and 'BBB' categories, fall 2023 median occupancy has remained stable compared with last year, with minimal further changes anticipated. In the 'B' rating category, median debt service coverage (DSC) has steadily improved, based on our expectations for fiscal 2023. Conversely, while projects in the 'A' and 'BBB' categories saw an elevated median DSC of 1.53x in fiscal 2022, we expect fiscal 2023 coverage will decline to 1.4x as external support wanes.
|Privatized student housing medians by selected categories|
|--Medians by rating--|
|All projects||A and BBB categories||BB category||B category|
|Fall 2020 occupancy (%)||76.3||78.0||73.5||49.4|
|Fall 2021 occupancy (%)||90.2||98.0||84.5||77.4|
|Fall 2022 occupancy (%)||96.0||97.8||95.0||94.2|
|Fall 2023 occupancy (%)||95.7||97.7||94.8||94.0|
|Fiscal 2021 DSC||1.20||1.33||1.20||0.75|
|Fiscal 2022 DSC||1.25||1.53||1.20||1.10|
|Expected fiscal 2023 DSC||1.24||1.40||1.20||1.15|
|Reserves* / annual DS||1.65||2.11||1.42||1.12|
|Non-DSRF reserves in fiscal 2022 ($000s)||1,606||1,991||1,622||158|
|Data as of Oct. 31, 2023. Excludes projects under construction and CCC. *Reserves include debt service reserve funds plus other reserves available for debt service payments as of fiscal year-end 2022. DSC--Current debt service coverage; DS--Current debt service. Source: S&P Global Ratings.|
Occupancy: Projects Are Mostly Filled, With Some Exceptions
In the past two years, students have been eager to return to campus and the risks associated with the pandemic have decreased. Although new variants have ensured some sustained risk, the acute impact of the pandemic remains minimal on college campuses and their related housing projects into fall 2023. Final occupancy rates are not yet available for all of the projects we rate; however, current reporting suggests occupancy is high across the sector, with slimmer segments remaining below 90%, or even 80%.
Finances: DSC Returns To Equilibrium
As occupancy recovers, DSC likewise continues to stabilize. For projects in lower rating categories, DSC has steadily climbed over the past few years, although fiscal 2023 expected DSC medians remain below the usual 1.2x covenant rate. Conversely, projects rated in the 'A' and 'BBB' categories have seen a decline in median DSC to our forecast fiscal 2023 level of 1.4x, below the fiscal 2022 DSC median of 1.53x. At this time, most projects have fully processed all pandemic-related variability in their financial performance, including university support via federal funding passed through to cover student bad debt expense, as well as drops in occupancy due to health-related precautions.
There are some exceptions. For example, The Maryland Economic Development Corp. Fayette Square project at the University of Maryland, Baltimore continues to receive direct support up to 1.0x DSC from the university. In this case, where the local housing market and older student demographics provide ongoing pressure that was not relieved by the end of pandemic-related measures, the university and project management are considering the sale and closure of the project, so as not to continue the draw on university resources. We expect those universities that did not substantially support their projects before the pandemic will have limited appetite to continue such support much longer if it remains necessary after the lifting of pandemic restrictions.
Reserves: Steadily Increasing Reserves And Steadily Aging Projects
Of 27 projects with reported reserves aside from debt service reserve funds (DSRFs) in fiscal 2021, 63% reported these reserves increased in fiscal 2022, as projects continued contributing to repair and replacement funds, in line with anticipated long-term maintenance plans. Of those five projects with no reported maintenance reserves, all had some level of DSRF available, although only one was funded equal to maximum annual debt service (MADS).
Two DSRFs were underfunded according to their terms, having been drawn on to pay debt service in the past few years and not yet replenished from operations, given fiscal 2022 DSC below 1.1x. We expect projects, especially those that dipped into reserves to pay debt service or that have seen a slow recovery in financial operations, will need more time and sustained recovered occupancy to replenish these funds over the next few years.
Of 55 facilities across the 47 rated projects, 20% opened within the past five years, and 47% opened within the past 10 years. Four projects are still under construction through 2025. Although the advancing age of many projects could require further accumulation of maintenance reserve funds, older projects do not consistently have materially higher reserves than new projects as of the end of fiscal 2022. The project with the highest recorded reserves is Ridgecrest Student Housing LLC at the University of Alabama, with $39.7 million of reserves in addition to a DSRF funded equal to MADS; followed by the Monroe Community College project with $25 million of reserves in addition to a DSRF funded equal to MADS. Average reserve levels outside of DSRFs are generally low for projects that opened after 2016. However, reported reserves might not fully reflect project preparedness for scheduled maintenance, either because recent expenditures for maintenance drained the reserves as planned, or due to a particular point-in-time low in recorded reserves at the end of the fiscal year.
Rating Distribution And Changes: Many Projects Settle At Below Pre-Pandemic Ratings, Although Some Outlooks Were Revised To Positive
As pandemic pressures fade, weaknesses in demand and financial performance persist for a few projects while others see long-awaited recovery. As of Oct. 31, 2023, 68% of projects rated by S&P Global Ratings have a stable outlook, in line with the number at this time last year. However, although 21% of projects have a negative outlook, we have revised the outlooks on five projects to positive since March 2020. Of the five projects with a positive outlook, all are still rated lower than they were as of March 2020 (two by one notch, two by two notches, and one by five notches). In one case, we revised the outlook to positive after a delayed recovery in occupancy to pre-pandemic levels spurred by administrative delays outside of management's control, while others have seen steady enrollment growth at the related universities contributing to increased demand.
Of the 10 projects with a negative outlook, the ratings on two are unchanged since March 2020, while others have been lowered by two to eight notches. In November 2022, we lowered the rating on Beech International LLC to 'CCC' from 'BB+' following a technical default and persistent extremely low occupancy, among other related issues; in November 2023, we lowered the rating to 'CC' and placed it on CreditWatch with negative implications following the use of debt service reserve funds in June 2023 and continued low occupancy, leading to a very high likelihood of potential acceleration. Other significant downgrades since March 2020 include the Foundation for Indiana University of Pennsylvania Phase II project, which has experienced weak-although-slowly-recovering occupancy amid material enrollment declines at the university; and West Campus Housing LLC, which has seen weak DSC amid the additional uncertainty about continued financial support given a declared financial emergency at the related university. Of the 43 projects rated by S&P Global Ratings, since March 2020, more than half (53%) have retained, or in one case exceeded, the pre-pandemic ratings over the past three and a half years, while the remainder have been downgraded by one to eight notches. Of those downgraded since March 2020, 40% have a negative outlook, while another 40% have a stable outlook.
Although two projects were upgraded since September 2022, five downgrades continued the sector's rating distribution shift downward, with two of those projects seeing consecutive years of downgrades. In the past year, we also withdrew our rating on the debt of three projects. Of the two upgrades, CHF Cook LLC was the first project to be rated higher than it was in March 2020, after we raised the rating to 'B' from 'B-' in July 2023, based on improved occupancy and a continued commitment from the associated university to provide support for debt service payments. National Campus & Community Development Corp.-Orange Coast Properties LLC is rated one notch below our March 2020 rating of 'BBB-', following an upgrade to 'BB+' from 'BB' in October 2022 (we revised the outlook to positive on Oct. 30, 2023).
|Privatized student housing rating actions since September 2022|
|Obligor||Corresponding institution||State||Rating to||Rating from||Outlook to||Outlook from|
|National Campus & Community Development Corp.-Orange Coast Properties LLC*||Orange Coast College||CA||BB+||BB||Stable||Stable|
|CHF Cook LLC||Northeastern Illinois University||IL||B||B-||Stable||Stable|
|Positive outlook revision|
|Purchase Housing Corp. II||Purchase College (an institution in SUNY)||NY||BBB||BBB||Stable||Negative|
|CHF Collegiate Housing Denton LLC||Texas Woman's University||TX||BBB-||BBB-||Stable||Negative|
|Maryland Economic Development Corp.||Towson University (West Village and Millennium Hall)||MD||BB+||BB+||Positive||Negative|
|CHF Collegiate Housing College Station I LLC||Texas A&M University System - College Station||TX||BB+||BB+||Positive||Stable|
|National Campus & Community Development Corp.-Orange Coast Properties LLC*||Orange Coast College||CA||BB+||BB+||Positive||Stable|
|Provident Commonwealth Educational Resources||University of Massachusetts System - Boston||MA||BB+||BB+||Stable||Negative|
|CHF Dover LLC||Delaware State University||DE||BB-||BB-||Positive||Stable|
|National Campus & Community Development Corp.-Hooper Street LLC||California College of the Arts||CA||B||B||Stable||Negative|
|Provident Group - Kean Properties LLC||Kean University||NJ||B||B||Positive||Stable|
|Provident Group - Rowan Properties LLC||Rowan University||NJ||B||B||Stable||Negative|
|Maryland Economic Development Corp.||Frostburg State University||MD||BB||BB+||Negative||Negative|
|Lock Haven University Foundation||Lock Haven University||PA||BB-||BB||Stable||Negative|
|University Park at Evansdale LLC||West Virginia University||WV||BB-||BB+||Negative||Stable|
|West Campus Housing LLC||New Jersey City University||NJ||B||BB-||Negative||Negative|
|Beech International LLC||Temple University||PA||CCC||BB+||Negative||Negative|
|Negative outlook revision|
|Longwood University Real Estate Foundation||Longwood University||VA||BBB-||BBB-||Negative||Stable|
|Data as of Oct. 31, 2023. *National Campus & Community Development Corp.-Orange Coast Properties LLC recorded for two separate rating actions since September 2022. SUNY--The State University of New York.|
One project successfully opened in fall 2023, while three projects started construction with expected openings in fall 2025. Of those newly rated projects that have opened since fall 2020, five of six report fall 2023 occupancy at or above 95%, with improvements seen since fall 2021. Given current high interest rates, inflationary pressures on construction expenses, and labor shortages, we expect new projects will only proceed if management is certain that student demand will support the development.
|New construction of privatized housing projects since March 2020|
|Obligor||Corresponding institution||State||Rating||Outlook||Opening term||Fall 2021 occupancy (%)||Fall 2022 ocupancy (%)||Fall 2023 ocupancy (%)|
|Beyond Boone LLC||Appalachian State University||NC||BBB-||Stable||Fall 2020||99.1||98.9||98.6|
|National Campus & Community Development Corp - Hooper Street LLC||California College of the Arts||CA||B||Stable||Fall 2020||90.4||97.0||97.2|
|National Campus & Community Development Corp.-Orange Coast Properties LLC||Orange Coast College||CA||BB+||Stable||Fall 2020||90.0||97.0||99.0|
|Provident Commonwealth Education Resources II||University of Massachusetts System - Dartmouth||MA||BB||Negative||Fall 2020||78.0||91.0||95.0|
|Maryland Economic Development Corp. (Entrepreneurship Living-Learning Community)||Bowie State University||MD||BBB-||Stable||Fall 2021||99.6||98.6||98.2|
|National Campus & Community Development Corp.-Santa Rosa Properties LLC||Santa Rosa Junior College||CA||BB||Stable||Fall 2023||N/A - under construction||N/A - under construction||93.2|
|CHF Tippecanoe LLC||Purdue University||IN||BBB-||Stable||Fall 2025*||N/A - under construction||N/A - under construction||N/A - under construction|
|Provident Group-Williamsburg Properties LLC||The College of William & Mary||VA||A+||Stable||Fall 2025*||N/A - under construction||N/A - under construction||N/A - under construction|
|CHF Manoa LLC||University of Hawaii at Manoa||HI||BBB-||Stable||Fall 2025*||N/A - under construction||N/A - under construction||N/A - under construction|
|Data as of Oct. 31, 2023. *Expected completion. Includes projects under construction with new ratings separate from existing projects. Not listed are Maryland Economic Development Corp. (Thurgood Marshall and Legacy Hall) projects at Morgan State University, opening in fall 2022 and fall 2024, respectively, given cross-collateralization with the existing Morgan View project. Source: S&P Global Ratings.|
What We Are Watching
Demand and occupancy
For projects to be successful, they need to generate occupancy of 95% or above. Although students are eager to live on campus and we expect occupancy rates at student housing projects will be maintained or increase, much depends on the demand metrics at the respective institutions.
Rising expenses and inflation
Increased occupancy and a reduction in pandemic-related pressures on students' ability to pay rent have generally led to a stabilization in project revenues. However, inflation and rising expenses could hamper operations in the coming years depending on the projects' ability to rein in expense increases or raise rental rates, with many projects resistant to the latter given both competitive market pressures and a drive to keep student housing as affordable as possible.
The importance of university support
Although 56% of rated projects received some university support to make debt service payments in fiscal years 2020 or 2021, university support has generally lessened since then, given the end of pandemic-related federal funds that could be passed through to housing projects and the overall recovery in occupancy reducing the need for such aid. Far fewer projects are still receiving support into fiscal 2023 due to persisting low occupancy.
Following a couple of leaner years during which a few projects drew on non-DSRF reserves to make debt service payments and more lagged targeted funding of these reserves because of reduced financial performance in fiscal years 2020 and 2021, almost two-thirds of projects reported increased reserves in fiscal 2022. As financial operations stabilize and projects age, we expect these reserves will increase and contract in line with scheduled maintenance plans.
|Privatized student housing projects by rating|
|Buffalo State College Foundation Housing Corp.||Buffalo State College (an institution in SUNY)||NY||A+||Stable|
|Provident Group - Williamsburg Properties LLC||The College of William & Mary||VA||A+||Stable|
|Upstate Properties Development Inc.||Upstate Medical University (an institution in SUNY)||NY||A+||Stable|
|Abby Lane Housing Corp.||College of Environmental Science and Forestry (an institution in SUNY)||NY||A||Stable|
|Empire Commons Student Housing Inc.||University at Albany (an institution in SUNY)||NY||A||Stable|
|Purchase College Foundation Housing Corp.||Purchase College (an institution in SUNY)||NY||A||Stable|
|Ridgecrest Student Housing LLC||University of Alabama||AL||A-||Stable|
|CDFI Phase I LLC||The University of Tennessee at Chattanooga||TN||BBB||Stable|
|Purchase Housing Corporation II||Purchase College (an institution in SUNY)||NY||BBB||Stable|
|Beyond Boone LLC||Appalachian State University||NC||BBB-||Stable|
|CHF Ashland LLC||University of Southern Oregon||OR||BBB-||Negative|
|CHF Collegiate Housing Denton LLC||Texas Woman's University||TX||BBB-||Stable|
|CHF Cullowhee LLC||Western Carolina University||NC||BBB-||Stable|
|CHF Manoa LLC||University of Hawaii at Manoa||HI||BBB-||Stable|
|CHF Tippecanoe LLC||Purdue University||IN||BBB-||Stable|
|CHF Toledo LLC||University of Toledo||OH||BBB-||Stable|
|Longwood University Real Estate Foundation||Longwood University||VA||BBB-||Negative|
|Maryland Economic Development Corp.||Towson University (University Village at Sheppard Pratt)||MD||BBB-||Stable|
|Maryland Economic Development Corp.||Bowie State University (Christa McAuliffe Residential Community)||MD||BBB-||Stable|
|Maryland Economic Development Corp.||Bowie State University (Entrepreneurship Living-Learning Community)||MD||BBB-||Stable|
|Maryland Economic Development Corp.||Morgan State University||MD||BBB-||Stable|
|North Carolina A&T University Foundation Inc.||North Carolina A&T State University||NC||BBB-||Stable|
|North Carolina A&T University Real Estate Foundation Inc.||North Carolina A&T State University||NC||BBB-||Stable|
|Allegany College Housing LLC||Allegany College of Maryland||MD||BB+||Stable|
|CHF Chicago LLC||University of Illinois at Chicago||IL||BB+||Stable|
|CHF Collegiate Housing College Station I LLC||Texas A&M University System - College Station||TX||BB+||Positive|
|Maryland Economic Development Corp.||Towson University (West Village and Millennium Hall)||MD||BB+||Positive|
|Maryland Economic Development Corp.||University of Maryland, Baltimore||MD||BB+||Stable|
|Monroe Community College Association Inc.||Monroe Community College (an institution in SUNY)||NY||BB+||Stable|
|National Campus & Community Development Corp. - Orange Coast Properties LLC||Orange Coast College||CA||BB+||Positive|
|Onondaga Community College Housing Development Corp.||Onondaga Community College (an institution in SUNY)||NY||BB+||Negative|
|Provident Commonwealth Educational Resources||University of Massachusetts System - Boston||MA||BB+||Stable|
|Maryland Economic Development Corp.||Frostburg State University||MD||BB||Negative|
|National Campus & Community Development Corporation - Santa Rosa Properties LLC||Santa Rosa Junior College||CA||BB||Stable|
|Provident Commonwealth Education Resources II||University of Massachusetts System - Dartmouth||MA||BB||Negative|
|CHF Dover LLC||Delaware State University||DE||BB-||Positive|
|Housing Northwest Inc.||Portland State University||OR||BB-||Stable|
|Lock Haven University Foundation||Lock Haven University||PA||BB-||Stable|
|Provident Group - Howard Properties LLC||Howard University||DC||BB-||Negative|
|University Park at Evansdale LLC||West Virginia University||WV||BB-||Negative|
|B category and below|
|CHF Cook LLC||Northeastern Illinois University||IL||B||Stable|
|Foundation for Indiana University of Pennsylvania Phase II||Indiana University of Pennsylvania||PA||B||Negative|
|National Campus & Community Development Corp. - Hooper Street LLC||California College of the Arts||CA||B||Stable|
|Provident Group - Kean Properties LLC||Kean University||NJ||B||Positive|
|Provident Group - Rowan Properties LLC||Rowan University||NJ||B||Stable|
|West Campus Housing LLC||New Jersey City University||NJ||B||Negative|
|Beech International LLC||Temple University||PA||CCC*||Negative|
|Data as of Oct. 31, 2023. *Subsequent to data cutoff, Beech International LLC was downgraded to CC/Watch Neg on Nov. 14, 2023. SUNY--The State University of New York.|
This report does not constitute a rating action.
|Primary Credit Analyst:||Nicholas Breeding, New York 212-438-3010;|
|Secondary Contacts:||Jessica L Wood, Chicago + 1 (312) 233 7004;|
|Laura A Kuffler-Macdonald, New York + 1 (212) 438 2519;|
No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.