Privatized student housing – Four key trends will differentiate older and newer P3 projects next year

Source: Moody’s Investors Service, May 1, 2018 (Subscription Required)

Privatized student housing projects are vulnerable to negative pressures in the higher education sector, but will hold steady because of solid real estate fundamentals and marginally improving financial performance. … Examining how trends differ between older projects that have been operating for four years or more (seasoned) and new construction that opened in 2015 or later (recent) underscores how a project’s early years carry the most risk, seasoned projects’ upside potential is limited and no project is immune from an unfavorable operating environment. … Rent growth trend diverges for seasoned projects. … Sector maintains solid occupancy despite disappointing initial lease up at some new projects. … Financial performance strengthens overall, but year-to-year fluctuations at individual projects are the norm. … Unfavorable operating conditions contributed to five downgrades last year. …

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U.S. public universities turning to private sector to meet campus needs
Source: Stephanie Kelly, Reuters, August 26, 2016

U.S. public universities are increasingly turning to public-private partnerships to develop student housing and other campus projects, sometimes using the structure to transfer borrowing and liability risks to the private sector. Over the last five years, there has been an “uptick” in universities and colleges leveraging the private sector to deliver housing needs, said Kevin Wayer, an international director and co-president of the Public Institutions group at commercial real estate firm Jones Lang LaSalle. … Use of P3s can contribute to reduced debt on universities’ balance sheets, said Todd Duncan, assistant vice president of housing, food and retail services at the University of Cincinnati’s main campus. While still only a “fraction” of the U.S. municipal infrastructure market, the P3 market is building, Moody’s Investors Service said in a report issued in March. … Universities might engage in P3s for a number of different reasons, including the efficiency that developers can bring to projects, Duncan said. Increased operating costs for institutions and decreased state contributions have led to a financing gap, said Kurt Ehlers, managing director at Corvias Campus Living, a development group. From fiscal 2008 to fiscal year 2016, state spending per student at public two- and four-year colleges decreased 18 percent, according to Michael Mitchell, a senior policy analyst at the Washington, D.C.-based Center on Budget and Policy Priorities. The National Council for Public-Private Partnerships, a non-profit that advocates for P3s, lists 18 types of P3 partnership structures on its website. The council did not have a national figure for how much money is being spent on higher education P3 projects. …