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CRE Finance World Summer 2015
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One can argue that there are non-performance related reasons a
loan may be flagged by the servicer for watchlist status, including
borrower issues and upcoming maturity. Upon further analysis,
DBRS has concluded that most of the loans included in the count
above are currently on the watchlist for performance-related issues.
CREFC guidelines dictate that properties experiencing a substantial
decline in occupancy may be flagged for the watchlist, though the
investor reporting package does not account for seasonality. Given
the nature of student housing, it is common that these asset types
experience higher vacancy during the summer months. Freddie
Mac generally requires that its borrowers submit financial reports
on a quarterly basis, which would theoretically lead to a rise of
loans secured by student housing properties flagged for occupancy
issues in those quarterly reporting periods that fall during the
summer months. Based on its review of the data, DBRS does not
believe seasonality to be a driving factor behind the propensity
of student housing properties to fall on the servicer’s watchlist.
Beyond the watchlist, loans secured by student housing properties
also experience delinquency and special servicing transfers more
often than loans secured by traditional multifamily properties, as
illustrated in the charts below.
Exhibit 6
US CMBS: Student Housing Delinquency Rate
Exhibit 7
US CMBS: Student Housing SS Rate
As long as university enrollment continues to increase and on-campus
development remains stagnant, developers of off-campus student
housing will continue to see business opportunities. It would stand
to reason that the largest and most popular universities will support
a more sustainable student housing market. This opinion is echoed
by senior industry professionals, who regularly prefer large schools in
states such as Texas, Florida and Virginia, where student enrollments
and demand for housing continues to rise. The expectation for new
construction and increased competition means that owners will
need to constantly invest in their properties to remain viable in the
student housing sector with the added challenge of convincing
tenants and their cosigners that the upgrades are worth the rising
rental rates. DBRS does not expect to see a slow-down in the
securitization of student housing collateral in the near term, but will
continue to view this particular property type as being susceptible
to higher credit risk than traditional multifamily. Since demand
is directly correlated with college enrollment, greater volatility in
occupancy rates and net cash flow and historic performance issues
is to be expected.
1 As measured by the standard deviation of annual cash flow changes for
all post 2010 CMBS student housing properties.
Student Housing Performance in CMBS