CBRE - Student Housing Market - 20200625

SUMMARY RECAP | JUNE 25, 2020
Student Housing
State of the Market
Below is a high-level summary of the call held on June 25, 2020. For additional data, insights and
available listings, please connect with the CBRE Student Housing Team.
LISTEN TO THE RECORDING
OPENING COMMENTS
Brian McAuliffe, President, CBRE Capital Markets, Multifamily
The Capital Markets environment for Multifamily is significantly more favorable today than 60 days ago,
especially for Student Housing. Although there continues to be uncertainty in Student Housing, primarily
related to university and college opening dates, the recent data, which will be covered by our speakers, is
pointing to significantly more positive trends. We expect accelerated investor interest in the Student
Housing sector and investment sales and debt transaction activity will eventually start to increase.
© 2020 CBRE | 1
CBRE ROUNDTABLE | STUDENT HOUSING STATE OF THE MARKET
ECONOMIC & CAPITAL MARKETS CONDITIONS

Spencer Levy, Chairman of Americas Research & Senior Economic Advisor, CBRE Research
Optimism on the Economy

CBRE has forecast a consistent “V” shaped economic recovery, which has been bolstered by our macro
view and “facts on the ground” from China. Not all is perfect, as evidenced by the recent flare up in
Beijing, but China is open, and the economy is growing. The downside risk is significant (40%), but the
NASDAQ hit an all-time high last week, and as the stock market is the number one indicator of both
consumer and business confidence, CBRE stands by our optimistic call.
Capital Markets
The U.S. capital markets lack price discovery, as the level of deal flow is down almost two thirds from the
pre-COVID-19 peak. Most of the deals that are being done are in the industrial and multifamily sectors,
with almost none in hotels and retail and a handful in office.
There is strong liquidity in multifamily and industrial (all but spec), but liquidity outside of those sectors,
including office, continues to be constrained. The key unanswered question is “values,” and this cannot
be answered until we know “the bottom” on rent collections.
Commercial Real Estate Forecast

CBRE forecasts that multifamily is one of the asset types – along with industrial – likely to come out of this
economic distress the fastest, with office recovering on a slower pace and retail and hotels taking the
longest time to fully regain pre-COVID-19 numbers. The biggest risk factors to recovery are housing
affordability, taxes, a possible second-wave of regional and local economy shutdowns and industry
types. The U.S. presidential election should create only minimal impact on the commercial real estate
industry overall.
The other impact to watch is the next federal government stimulus package. If another stimulus is not
passed by September, it is unlikely to happen until post-election, in the absence of a major stock market
collapse or other huge negative surprise, such as another spike in unemployment.
Summary
No market or asset type is immune to this crisis, but the U.S. is and will be resilient as a haven for
international capital and we are optimistic that by 4Q 2020 we will begin to see an upturn in transaction
activity.
© 2020 CBRE | 2
CURRENT OPERATING FUNDAMENTALS

Jeanette Rice, Head of Multifamily Research, CBRE Research
Although COVID-19 definitely has impacted higher education, the student housing market is holding up
much better than expected, as is evidenced by three important market fundamentals.
● Occupancies in the Spring. Most universities transitioned to online learning mid- to late-March. A
survey of student housing management companies revealed physical occupancies onsite ranged
between 40-60% in March and April, with some investors seeing an uptick in winter/spring term
leasing due to residents being displaced from their on-campus housing.
● Rent Collections. A CBRE survey found that rent collections for June (as of June 20) averaged 93.2%
across 460,000 tracked beds. This was slightly higher than conventional multifamily rent collections,
reported at 92.2% through June 20.
● Pre-leasing for Fall Semester. After an initial slowdown, leasing momentum is gaining pace as
most universities report they will open to on-campus classes. Based on the 600,000 beds CBRE
surveyed in late June, leasing velocity is now only 2.3 percentage points behind last year.
STUDENT HOUSING MARKET OVERVIEW

Jaclyn Fitts, Executive Vice President, CBRE Capital Markets, Student Housing
Distressed Debt
Delinquency is highly concentrated in a select group of owners and does not indicate market wide
concerns. Based on the data collected, five ownership groups account for 59% of student housing loans
that are 90+ days delinquent, in foreclosure or REO status. Five separate ownership groups also account
for 72% of student housing loans less than 90 days delinquent. With the strong collections seen in the
sector in late spring, CBRE does not believe COVID-19 is a driver for any distress in the sector, and select
owners are taking advantage of the potential to renegotiate their loans in oversupplied markets.
University Plans for 2020-2021 Academic Year

The financial incentive for universities to operate in-person has been well-documented. Eighty percent
(80%) of universities have announced either in-person classes or the hybrid model with some on-campus
instruction. The 77 universities that have indicated they will move online for fall 2020 represent only
21,411 of the 1,240,493 beds (1.7%) that Axiometrics Advisors tracks as purpose-built, off-campus
student housing, and 61 of these universities are located in California.
Demand for Off-campus Student Housing Properties

● International Enrollment. According the Institute of International Education survey, 92% of
international students have remained in the United States. There are approximately 1.1 million
international students, meaning over 1 million of these students continued to take their classes – even
though online based – in the U.S. rather than returning to their home country. Additionally,
approximately 280,000 of the 350,000 Americans studying abroad during the spring semester
returned home, limiting the potential decline in international enrollment for fall 2020.
© 2020 CBRE | 3
● Freshman Enrollment and Retention Expected to Decline. According to a survey conducted by

Simpson Scarborough, approximately 10% of prospective high school graduating seniors stated that
they no longer plan to attend college in the fall. The same survey reported that, when given the
option to continue their education online or return to campus for in-person instruction, 85% of
current college students said they would return to campus.
● De-Densification. An April 27th survey from the Association of College and University Housing
Officers demonstrated that 70% planned for or are considering de-densification, or reducing bed
counts for housing on campus. According to a recent Student Housing Business survey, 79% of on-
campus housing officers indicated that their institutions were planning on keeping an existing on-
campus housing facility offline for a potential quarantine space during the 2020-2021 academic
year. CBRE believes de-densification of on-campus housing will help to offset any potential
enrollment declines and allow the off-campus student housing market to remain highly occupied.
● Impact of Unemployment. As unemployment increases, so does enrollment growth at public
institutions. This is commonly attributed to two factors: as people with lower education levels face a
higher degree of unemployment, especially in recession times, they seek post-secondary education
for the stabilized career path and lower unemployment levels it provides. Secondly, college graduates
frequently seek higher graduate education in the face of high unemployment levels. Given the U.S. is
currently facing record unemployment levels, especially among the population with lower levels of
education, we anticipate this will propel college enrollment.
Transaction Market and Capital Availability

● 2020 started strong for the student housing industry, with Q1 seeing $1.7 billion in transactions,
despite COVID-19 impacts swelling in March. This was 13.3% higher than Q1 2019.
● The transaction market has been virtually at a standstill outside of a handful of assets that had hard
earnest money pre-COVID-19.
● While the number of universities expecting in-person classes is very high, the “heads on beds” proof
will drive investor interest and demonstrate the recessionary qualities of student housing.
Summary
CBRE believes that the student housing transaction market will come back strongly this fall and that pre-
COVID-19 pricing will remain intact. In about 60 days, today’s trends of university openings and positive
leasing momentum will result in a student housing sector armed with strong fundamentals in a
historically low interest rate environment, providing attractive opportunities for the investment community
long before many other product types recover in the wake of COVID-19.
DEBT & STRUCTURED FINANCE MARKETS

Ben Roelke, Executive Vice President, CBRE Capital Markets, Debt & Structured Finance
Prior to COVID-19, debt providers had already put student housing under a microscope; however,
lenders were aggressively competing for quality, well-located deals in strong markets when backed by
proven student housing owners. Since the outbreak of COVID-19, the lending market has largely been in
a “wait and see” mode until getting more information regarding both property performance and school
openings. Now that the market has been provided with more clarity on that information, lenders are
beginning to quote new financing opportunities. Right now, the agencies are focused on providing
financing for student housing acquisitions and will begin looking at refinances again for fall closings
© 2020 CBRE | 4
once those rent rolls are finalized and schools start back up. Interest rates are very attractive, with rates
for student housing typically ranging from 3% to 3.5%, depending on leverage and term.
Life companies in general are quoting new business but being very selective on asset types, with a mixed
response to recent student housing financings we have marketed to them. We received some competitive
terms, around 65% LTV. Others are taking a more conservative approach to underwriting and generally
quoting in the 50-60% LTV range and some are still on pause for student housing. Banks had a similarly
mixed response for financing stabilized student housing assets, providing a mix of quoted terms, while
some still remain on the sidelines for any new business.
© 2020 CBRE | 5

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SUMMARY RECAP | JUNE 25, 2020

LISTEN TO THE RECORDING

ECONOMIC & CAPITAL MARKETS CONDITIONS

Optimism on the Economy

Commercial Real Estate Forecast

CURRENT OPERATING FUNDAMENTALS

STUDENT HOUSING MARKET OVERVIEW

University Plans for 2020-2021 Academic Year

Demand for Off-campus Student Housing Properties

● Freshman Enrollment and Retention Expected to Decline. According to a survey conducted by

Transaction Market and Capital Availability

DEBT & STRUCTURED FINANCE MARKETS

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