Chicago — During the Second Annual InterFace Student Housing Conference, which was held last month in Chicago, attendees gained valuable insight on the student housing real estate climate and what is in store for the industry’s future. The last morning session, “Is Liquidity Returning to the Capital Markets? The Outlook for Debt & Equity Capital for the Student Housing Real Estate Industry,” featured a panel of four industry experts andwas moderated by Brian Kelly, a director with Holliday Fengolio Fowler. The panelists included Matt Phillips, vice president with Mutual of Omaha Bank; Richard Martinez, managing regional director, multifamily south east regional production and sales group for Freddie Mac; Joseph Stepchuk, director of multifamily customer management, housing and community development division for Fannie Mae; and J. Welsey Rogers, president and CEO of Landmark Properties.
Despite the economic slowdown, the student housing industry is experiencing a great performance overall, especially compared to general multifamily properties.
“Freddie Mac’s multifamily portfolio is about $100 billion and our default rate on that has been about 31 basis points, which is an industry best. On the student side, we have about $3 billion and we actually have no defaults, no student loans on the watch list — the student housing portfolio is performing phenomenally,” says Richard Martinez of Freddie Mac.
Across the board, panelists agreed that the student housing market is still strong and gaining momentum. Demand is high for new student housing projects and local university markets continue to seek out developers and financing for future projects.
As the title suggests, capital and liquidity is returning to the student housing markets, which is making deals easier to envision and finance. Although, lenders are still being cautious and vetting out projects and borrowers before green lighting funding.
Joseph Stepchuk explains Fannie Mae’s vetting process for its dedicated student program, “We’re looking for 80 percent or more student occupancy. The ideal situation is a university of 20,000 students, the property situated on a public transportation system within 2 miles of the campus, parental guarantees, an experienced sponsor, a strong financial capacity, and no university ground lease or meal plans.” As with any loan process, there is flexibility, but it’s limited to ensure the loan’s security. Well-known and established universities with a strong demand for student housing may see some flexibility from lenders, but sticking points, such as parental guarantees and 12-month leases, help to ensure payment and keep the properties in business.
During the last 6 to 9 months, underwriting floors have lowered, but it appears that the decreases are bottoming out. Underwriting concerns continue to focus on pre-leasing rates, low-vacancy revenues and construction viability and success. Lenders are adding general clarifications and structure to many of the previously gray areas in the financing market, especially as it relates to student housing real estate.
Investors should remain optimistic for student housing financing and capital. Banks and lenders are willing to work with proven investors and developers as long as the projects meet a company’s individual loan standards. There continues to be some flexibility in the loan process, although there are more structured processes in place to protect investors, banks and properties. Overall the student housing real estate market looks favorable and the dreary economic clouds are lifting.