Student Housing Business

MAY-JUN 2018

Student Housing Business is the voice of the student housing industry.

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CAPITAL MARKETS May/June 2018 StudentHousingBusiness.com 46 Providing Capital With plenty of capital sources and a healthy lending climate, 2018 has been a busy year for student housing lenders. By Randall Shearin L Lending intermediaries are not seeing any slowdown in the availability of capital for the student housing sector in 2018. Many report that the sector is a favorite and a well-known quantity among lenders, one that they want to count among their specialties. "Historically, student housing was viewed only as a subset of multi- family, but we have seen a distinct departure from that mindset through- out the current cycle," says Benjamin Roelke, senior vice president, debt and structured finance, CBRE Capital Markets. "Lenders are getting smarter about student housing and are asking the right questions more often than not." "Our high volume construction lending relationships view student housing as a stand-alone product type and understand that each market should be evaluated on its own merits, but in uncertain times there are macro forces that can alter risk evaluation standards generally, with the effects trickling down to specialized product types," says Tim Bradley, founder and CEO of TSB Capital Advisors. Student Housing — On Its Own Lenders increasingly view student housing as an attractive stand- alone asset class. Its strong performance during the Great Recession prompted many lenders to closely study and understand the sector, with many growing their lending platforms alongside strong developer clients. At the same time, many lenders have slowed their lending for all multifamily products, carefully balancing portfolios after the boom in conventional multifamily that occurred in the past few years. "While we are being cautious on new construction for both multifam- ily and student housing, we view them separately since they serve sig- nificantly different segments of the population," says Charles Williams, senior vice president and regional manager of KeyBank Real Estate Capital. "Most lenders, ourselves included, will focus on the growth and need for updated housing stock at the university in question." Lenders have gotten to know the market well, and seek assets that are in strong university markets with either stable strong enrollments (in Tier 1 university markets) or a forecast of enrollment growth (in Tier 2 and 3 university markets). "We are looking for the same 'boxes' to be checked that most active investors are looking for — pedestrian-to-campus, 12-month leases, parental guarantees, etc.," says Will Baker, managing director of mul- tifamily finance for Walker & Dunlop. "The properties we avoid are school sizes below 8,000 students, community colleges and junior col- leges. If the deal has a master lease to a school, sports team, fraternity/ sorority, it will cause some underwriting issues as well." "'What university?' is the first question the lender is going to ask," says Ryan Welsh, senior vice president and senior loan originator, multi- family finance, at PNC Bank. "Three or four years ago, that would have been the second or third question a lender would have asked." Much of what has enabled lenders to understand a host of markets is better data, something the industry as a whole is getting better at report- ing and delivering. [See related article on page 58 of this issue.] "Better market data has become available to lenders to help make decisions to fund a project or not," says Welsh. "Because lenders have access to reliable historical and current market rents and occupancy information, construction financing remains available in markets where additional supply is warranted. Similarly, it is harder to find aggressive construction financing in markets where current supply seems to be meeting demand." GSEs Dominate Last year was a record year for student housing financing for the government sponsored entities (GSEs) Fannie Mae and Freddie Mac. Together they funded a total of more than $5 billion in student housing volume in 2017. Fannie Mae reported volume of $3.8 billion last year for student housing, while Freddie Mac reported a volume of $1.6 billion for the calendar year. "Fannie Mae and Freddie Mac continue to be the most active in per- manent student housing loans," says Peter Benedetto, senior managing director of Berkadia. The two GSEs lead lending in the sector, but they are far from the sole providers of capital to developers and acquirers. "The agencies and life companies dominate the market for longer term fixed- and floating-rate permanent financing," says Roelke. "Banks and bridge lenders like debt funds and mortgage REITs are providing a lot of interim financing for properties either undergoing a value-add transition or just needing a short term financing solution. Banks continue to pro- Walker & Dunlop underwrote and funded a $707 million cross- collateralized credit facility with three separate tranches of fixed- and floating-rate debt for a 23 property portfolio that included 13,666 beds. Included in the portfolio were Sterling Burbank (pictured above) near Louisiana State University and The Cottages of Tempe (below) near Arizona State University.

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