Ever awakened surprised you didn’t have a hangover? Many student housing operators are feeling that way this fall. With many universities closing early in March 2020, a number of off-campus student housing properties expected to see their unexpected vacancies translate into unpaid rent, and those unpaid rents turn into collections. But that didn’t happen; most renters honored their contracts and continued to pay their rents. Moreover, leasing for fall 2020 remained strong in most college markets, bolstering the industry’s recession — and now pandemic — resistant reputation.
Off-campus student housing operators have dealt with a number of events that have surprised them this fall, and it has been interesting to watch as the industry pushes through them. The biggest of the surprises has been occupancy, especially in markets where virtual learning is the only option.
“We have been pleasantly surprised by those markets where school is only online this semester,” says Jake Jarman, chief operating officer of Redstone Residential. “Those numbers would appear to demonstrate that students crave the university experience. Students want to be around their friends, not studying in their childhood bedrooms surrounded by Pokémon posters and stuffed animals.”
Here are a look at some of the other surprises, as reported by operators.
Many operators have reported only slight increases over normal years in the number of residents who don’t move in — also known as ‘no-shows.’ Since many student renters are young, they often don’t realize that a lease is a binding legal document. Breaking a lease by not moving in and not cancelling the lease in advance is an infraction that can bring serious consequences to tenants.
“If an individual signed a fully executed enforceable housing contract and decided not to move in, he or she is still responsible for the total contract in full,” says Adam Byrley, chief operating officer of The Preiss Company.
During the last academic year, early on in the pandemic, many operators worked carefully with tenants who needed rental relief or assistance. They attempted to be sensitive to issues where guarantors had lost jobs or were otherwise impacted by the pandemic, with some owners going as far as to guarantee that no tenant would be without a home. For many operators, the no-show policy has not changed since the pandemic began, and many say they were upfront with tenants when leasing for fall 2020 as to what would occur if they decided not to move in.
“Obviously there are extenuating circumstances including state-mandated moratoriums on evictions and late fees,” says Jarman, of Redstone. “But we have been very transparent with our residents about our intentions.”
For many operators, that has included a new possibility –— offering the tenant a buy-out of the lease. One operator reported that it created a policy to allow buy-outs for lessees who decided not to move in. The initial offer was five months — essentially the fall semester. The company reports it worked well with many no-shows to bring about a win-win scenario for tenant and ownership.
This year, there’s been an increase in another class of resident: ghosts. These are residents who have signed a lease, but who never move-in and who never contact management to say they are not moving in and who often remain silent once contacted. Some owners reported to SHB that they didn’t have larger numbers of these mysterious ghosts than usual, while others said it was an issue in certain markets.
“Our organization had legal counsel send strong demand letters to both the resident and the guarantor,” said one operator, who wishes to remain anonymous. “Our language in the letter was strong and was used to try to get these lessors to the table. Even if it meant getting them to discuss a buyout, the letter from counsel was meant to start communication on lessors that had ‘gone dark’ on us.”
Collections companies are reporting that some operators have set policies with them to negotiate buyouts (albeit mostly on past debts at the time of this writing).
“We’ve seen some operators extend buyout options that start at 50 percent of the lease value and go as high as 75 percent when warranted,” says Ryan Howard, vice president of business development at BYL Collections.
Cancellation requests — separate than no-shows because lessors abide by the cancellation clause in the lease and notify the landlord of their intentions in advance — are often viewed differently by operators. Many operators said that what has helped them have relatively low numbers of ghosts and no-shows is early and honest communications with tenants before the move-in process began.
“For years, we have taken significant steps to identify potential no-shows prior to move-in so that we can anticipate them and replace them wherever possible,” says Casey
Petersen, chief operating officer of Peak Campus. “This year, as schools’ plans for the fall semester evolved, we saw cancellation requests increase on a year-over-year basis. However, we did not see significant increases in no-shows. We attribute this to enhanced communication with our incoming residents throughout the spring and summer.”
For those operators who did experience no-shows and ghosts, one option was to make a claim on lease insurance, if it was required and in place.
“For those applicants for whom we co-signed, Leap reimburses the first three months of rent on no-shows,”says Richard O’Connell, CEO of Leap, which provides rent protection insurance to tenants for the benefit of landlords. “We ask that our clients file a claim once the apartment is deemed a no-show — usually two weeks after that scheduled move-in. At that point, we pay our clients the rent for the first three months of the lease.”
Collections experts have not seen a big volume of pandemic-related debt come their way. Many say they are impressed by the way the industry is handling its interactions with tenants.
“Our team has been nothing short of impressed by the student housing industry’s focus and concern for its tenants’ personal and financial well-being during this pandemic,” says Howard.
Petersen explains that the student housing industry wants to help tenants in this time. “We have tried to take as many steps as we can to work with residents who couldn’t fulfill their lease obligations,” he says. “Early on in the pandemic, we worked with our residents across the country on payment plans. This fall, to the extent that we are able to get engagement with the residents, we delayed sending files to collections in an effort to work with them on reasonable ways for them to fulfill their obligations, secure lease replacements, etc. In all cases, we’re trying to do the right thing for residents and investors.”
Another surprise for student housing operators this fall came from their collections agents. Many reported record collections of debt from the past academic year and beyond.
“We have been setting records every month this year,” says Davin Smith, vice president of operations with ProCollect. “The only thing we can guess is that the economic stimulus from the CARES Act may have played a part.”
“We’re seeing more people able to pay right now, but it is on older debt rather than newer,” says Marilyn Lohonen, vice president with Southern Management Systems.
Stalling some debt collection efforts are provisions in local, regional and national legislation and orders. The CARES Act and HEROES Act passed by Congress also contain a number of provisions that pertain to evictions. Further legislation proposed in the U.S. House of Representatives this fall — but unpassed — suggested putting a hold on collecting all consumer debt until 120 days past the end of COVID, whenever that might be.
“That kind of legislation would devastate the credit world,” says Lohonen. “It would affect not just multifamily debt, but home loans, car loans and credit cards. It really gives everyone a reason not to pay anything.”
Needless to say, the changing regulations and proposed legislation this year have kept the multifamily industry on its toes and have kept collection agencies glued to the news. Collections agencies say that they are working closer than ever with clients, trying to recognize the sensitivities of being landlords to students, while still trying to recover debt. It can be a delicate balance, so agents and landlords have to develop policies and procedures that fit with the way they do business.
“Especially in student housing, it is important that we treat residents carefully,” says Lohonen. “Our clients want their student residents to come back. If it’s a freshman who has a collection because they damaged a unit, that student has three other years to try and find a place to live. We want the student not to have a bad taste because he or she had to deal with a property’s collection agency, but we still need to recover for our client.”
Many in the collections industry report seeing a slowdown in collections early on in the pandemic, and with many moving to work-from-home environments, there was some confusion in turning accounts over. Some of that may have also been operators giving leniency to tenants as the pandemic took hold.
“There was a time where some of our larger student housing clients weren’t sending accounts to us and were trying to figure things out with tenants,” says Smith.
“Even in March and April, when the pandemic started, we all thought it might be more temporary,” says Lohonen. “Many clients who have turned over accounts from that period feel that they have worked with tenants as best they could. They gave them all the leniency that they felt they could, or they tried payment plans. We did that as well, having gone through classes with the American Collectors Association. In this time, it’s important to remember that everything that is happening is no one’s fault. Much of it is beyond anyone’s control. We have tried to be kinder and gentler to assist tenants.”
With those tenants who are not paying, some collections agents are using a natural disaster code to mark the debt on a tenant’s credit so that those reviewing future credit pulls are aware the debt was due to COVID-based conditions, not due to any personal fault.
While no-shows from 2020-2021 haven’t started to flow through to collections quite yet, many do expect a wave from 2019-2020 that clients are trying to handle in-house, as well as quickly processed no-shows that can be turned over where possible.
“Most of our clients take an assertive posture when it comes to managing the no-show resident account,” says Steve Carter, president of Carter-Young. “The consensus is: process them quickly as a no-show, accelerate rent where possible and forward the account to collections in 30 days.”
Among the issues that debt collectors have had is a misconception from tenants and guarantors that state mandates and virtual learning requirements would excuse them from their leases.
“Many residents believed that not returning in-person to the university resulted in a release from their lease obligations, or the pandemic was enough to get them out of their obligations,” says Carter.
“The questions we most commonly hear are related to
COVID-19 mandates, for example, state or county stay-at-home orders and higher education virtual learning requirements,” agrees Howard.
While media headlines focused on off-campus parties as students returned to class, operators were surprised overall by the desire of students to be back at school. While the parties may have been a lapse in judgment on the part of some students who just wanted some fun and normalcy, off-campus student housing operators report that many residents on their premises have been getting accustomed to a new way of doing things.
“Events and dances that were not sanctioned by the universities or the housing complexes seemed to materialize overnight,” says Jarman. “Nobody could plan for how excited college students were to live a normal life again.”
Social distancing and personal protective equipment (PPE) are new to campus vernacular this fall, and resident adoption of those protocols has not been standard on and around every campus.
“It really has been a mixed bag, and that has a lot to do with how the schools and local governments are regulating gatherings,” adds Petersen of Peak Campus. “We have worked hard to communicate with residents both prior to and after move-in about expectations for social distancing and PPE while in common areas of the property.”
In some cases, all it took was outbreaks of COVID-19 in neighboring markets or at the school to get residents’ attention. The Preiss Company, which manages properties near the University of North Carolina at Chapel Hill — which quickly changed to online learning after a series of outbreaks on campus — saw changes implemented immediately by its residents there and elsewhere.
“Once the outbreaks occurred on campuses and they became much more commonplace at their specific university, it raised awareness for many college students who may have previously thought it was just an illness that affected the elderly or those with other pre-existing conditions,” says Byrley. “College students have been desperate for social behavior, so that inherently goes against what one has to do to fend off COVID. However, we’ve been pretty impressed.”
Redstone Residential, which manages properties in a number of Western states, saw the use of PPE increase as well.
“The first two weeks of the semester saw a massive spike in COVID cases,” says Jarman. “In most instances, the universities with in-person instruction have responded with strongly worded warnings regarding the spread of the disease and the threat of changing to online-only instruction. Students did not start out following social distancing guidelines or PPE protocols; however that has quickly changed.”
Another huge positive from the fall — and from the pandemic in general — has been how employees have behaved and conducted themselves. Realizing early on that on-site management really could not work off-site, operators and managers threw themselves into action to create safe environments for their employees.
“Nearly everything that we do has in some way had to be altered in order to deal with operating in a COVID-19 world,” says Petersen. “In all cases, we are trying to do everything we can to facilitate as safe and memorable an experience as we possibly can for both our residents and our team members.”
Many employees also responded by finding news ways to lease and manage properties during the pandemic. Turn and move-in have proved particularly challenging this year; both had always been duties that required close contact with a number of residents and vendors for on-site employees.
“It’s been just incredible the way that our property and support teams have risen to the occasion,” says Petersen. “They’ve worked extraordinarily hard in highly uncertain circumstances, and in many cases they have had to pivot multiple times to deal with a rapidly changing environment. The leadership that has been displayed at all levels of the organization has been inspiring.”
Many operators had to adjust not only how they conducted business, but also the way in which business was carried out because of extenuating circumstances.
“Since schools started we’ve created added flexibility for our employees with children in K-8 that have virtual learning environments,” says Byrley. “It has been tough for them to balance working and staying home with their children. We’ve developed new policies that allow for some additional work-from-home flexibility for those employee parents that hopefully can bridge the gap through the time that their children are having to learn virtually at home.”
Like Petersen, Byrley also praised his company’s employees:
“I’ve been so impressed with how well our employees have handled the past seven months,” he says. “They have been faced with so many crises and so much upheaval to their normal workplace environments and have dealt with it so professionally. They have put their health at risk by being our frontline resources at the property level, and we couldn’t be more proud of their efforts.”
— Randall Shearin
This article was originally published in the September/October 2020 issue of Student Housing Business magazine.