Student Housing: A Sector in Peril?

The ongoing COVID-19 pandemic has led to the closure or partial closure of many on-campus dormitories and privately run, offsite facilities. Against this backdrop of weakening demand and uncertainty around when college life may return to normalcy, our municipal bond team’s Vander Shanholt gives his take on the long-term challenges for student housing projects. He also explains why state budget cuts due to the pandemic could lead to opportunities for public-private partnerships to finance campus infrastructure projects.

For many years, colleges and universities across the United States have faced challenges arising from aging facilities. While some schools are able to borrow directly or leverage a large alumni base to fund capital improvements, a number of both public and private schools have utilized tax-exempt financing to fund the construction of privatized student housing projects.

These public-private partnerships, otherwise known as P3s, have increasingly become the workaround for chronic gaps in public funding. Between 2010 and 2019, there was approximately $11.1 billion of tax-exempt debt issued to finance P3 projects, including $6.7 billion over the last five years, as shown below.

It is important to note that 2018 saw an abnormally high number of P3 issuance in terms of par amount due to a couple of large transactions, including an over $500 million issuance for a project at the University of California-Davis. In 2019, we saw issuance return closer to what we have seen in previous years.

There is no question the COVID-19 pandemic has materially impacted the student housing sector. As cases increased in March, nearly every college and university closed its campus for the remainder of the spring semester and ordered students to depart on-campus housing facilities.