Delinquency Rates of Student-Housing CMBS Already Spiked in 2019. Then Came Covid

delinquency rates of student housing cmbs already spiked in 2019 then came covid

“Remote learning” hits the formerly hot asset class that was already troubled by a multiyear decline in student enrollment and a surge in upscale supply.

By Wolf Richter for WOLF STREET.

“Student housing,” a high-growth sub-category of multi-family housing (apartments) in commercial real estate, is now dealing with an existential crisis – similar to retail and lodging. Over the years, there has been a lot of supply of new properties, especially upscale properties. And the mortgages have been packaged into commercial mortgage-backed securities (CMBS) and sold to investors. Students aren’t exactly stable tenants. And the risks are high even in the Good Times.

Delinquency rates of 30-plus-days on the student-housing mortgages that back $4.7 billion in “private label” CMBS (not backed by Fannie Mae or Freddie Mac) started surging in 2019, and by January 2020 hit 10%, under the impact of oversupply of student housing, particularly the trend to “luxury student housing,” that came along with the eight-year trend of declining student enrollment. And then the Pandemic washed over student housing.

The 30-plus-day delinquency rate by loan balance hit an all-time record of 13.7% in July, according to Trepp which tracks CMBS. Then in August, the delinquency rate ticked down by to 13.1% (blue line), the 2nd highest ever, in part because some of the delinquencies were “cured” by entering the delinquent loans into forbearance agreements. For now, all other apartment property types (red line in the chart below) – despite the eviction bans – have shown relatively little stress, with a 30-plus-day delinquency rate at just 1.9% in August (chart via Trepp):

The straight-down plunge in the delinquency rates of all other multifamily housing types in early 2016 was in part the result of the $3-billion delinquent loan, backed by Stuyvesant/Peter Cooper Village in New York City, being resolved after Blackstone and Ivanhoe Cambridge purchased the property.

In addition, in August, the rate of student housing mortgages in “special servicing” – when a special servicer is put in charge of the loan – was 11.2%. And the rate of student housing mortgages on the servicer watchlist rose to 19.4%.

By August, $1.6 billion in mortgages backed by 101 student housing properties have requested or were already granted COVID-19 financial assistance.

Student housing is built on the foundation that students live on or near campus, and not at their parents’ place. For many people, it’s the first time living away from the parental umbrella, and it’s a blast. Or was a blast. Now colleges are struggling with the pandemic.

Some colleges are still doing remote learning only. Others have opened their campuses at reduce capacity. Some that have opened their classrooms have had new outbreaks on campus and closed their classrooms again and switched back to remote learning. For students, this is a hugely frustrating and expensive mess.

For example, one of the largest mortgages among these troubled student-housing mortgages that was granted forbearance, according to Trepp, is the $82.6-million loan, secured by The View at Montgomery, near Temple University, in Philadelphia, PA. In addition, the property secures a $9.8-million Agency mortgage that was packaged into a government-backed CMBS.

On September 3, Temple University announced that “in-person course instruction” has been suspended for the fall semester. This is what a now largely useless apartment at The View at Montgomery looks like:

And property prices are falling too. According to the Green Street Commercial Property Price Index, prices in August for student housing properties across the US have dropped by 11% since the onset of the Pandemic and by 12% over the past 12 months. This was behind only the 28% year-over-year plunge in prices of malls, the 25% plunge in prices of hotel properties, or the 14% drop in prices of strip-mall properties.

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