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Privatized student housing projects that were in strong financial condition before the pandemic arrived are now positioned well to recover come fall, given likely vaccination timelines, according to a report issued last week by Moody’s Investors Service.
The pandemic’s negative effect on student housing revenue has been cause for concern for investors and college administrators alike -- as well as a source of discord between some universities and housing developers, and between universities and students. When colleges and universities shifted to online instruction or cut dormitory occupancy rates to try to combat the spread of COVID-19, some privatized student housing projects experienced revenue shortfalls as rent payments declined. That financial pressure mounted on projects including those financed by municipal bonds, projects often labeled with the umbrella term P3s.
Moody’s rates about 50 privatized student housing projects. All have experienced some strain to their finances and credit situation, but fewer than one in five experienced material weakening in credit condition that could last for several years, the ratings agency found.
Three-quarters of the projects Moody’s rates that were in a strong position before the pandemic were able to maintain solid credit profiles through it. They were supported by strong occupancy rates, university support or the ability to draw on their own internal resources, such as postconstruction funds or internal project reserves. Their financial condition is likely to recover should widespread vaccination allow colleges and universities to return to higher levels of in-person instruction and activity on campus.
“The ability and speed of a privatized student housing project to return to pre-pandemic credit levels depends on the level of university support going forward and how rapidly project occupancy recovers,” Jacqueline McFadyen, assistant vice president at Moody’s, said in a statement. “Moreover, if internal reserves are used to make debt service payments, the type of reserves tapped, the extent of the taps and the ability of the project to replenish the reserves will drive the pace of recovery.”
