Two weeks after pricing a $350 million public-private partnership for student housing at Western Kentucky University, RBC Capital Markets is set to bring a second large student housing P3 financing to market next week.
The $298 million borrowing will finance an 18-story, 972-bed building at Wentworth Institute of Technology, an engineering and science focused university in Boston that has turned to its first P3 to build housing for its future freshman classes.
The school has inked a 50-year deal with borrower CHF Wentworth, Inc., created by Collegiate Housing Foundation.
The deal team has been shopping the bonds to investors and expects to price June 30, said Casey Fox, director of investment banking at RBC. The financial stability of WIT is a strong selling point, Fox said.
"We've seen across the higher-education landscape that there's been a lot of pressure on private higher education in the northeast," he said. "Wentworth is bucking that trend. Their enrollment has been growing and their big value proposition is that students get jobs coming out of this school."
Investors are interested, Fox said, citing the success of the WKU deal despite coming during a heavy supply week.
"Generally there's been a lot of demand for these student housing projects," he said. "They're different from a lot of other deals."
The student housing sector has been among the P3 market's busiest in recent years. Universities, reluctant to tap their own balance sheet, are turning to private partners to build and finance modern housing facilities to attract and retain students in the competitive higher-education space.
The Wentworth project will replace two existing dorms and be the only option for incoming freshman, according to an investor road show.
The Massachusetts Development Finance Agency will issue the debt, which will be divided into three tranches: $276.4 million tax-exempt series 2026A; $370,000 taxable series 2026B; and $18.3 million tax-exempt subordinate series 2026C.
S&P Global Ratings pegged the bonds at BB-plus, saying it expects demand to be strong due to growing enrollment, the on-campus location and competitive pricing. Analysts noted that WIT will enter into a contingent lease agreement under which the university will lease vacant beds if the annual budget projects that the fixed coverage ratio will fall below 1.0 times.
The deal has plenty of positive aspects, like the contingent lease, that make it an attractive credit, said Ryan Ciavarelli, senior vice president of credit research at Belle Haven Investments, which is considering buying some of the bonds.
"They've carved out a nice little niche for themselves up there and the last couple of incoming freshman classes have been growing," Ciavarelli said of WIT. "Their most recent housing occupancy was at 97 or 98% and they had a waitlist, so from that perspective, there's the need and the demand."
Outside of construction risk and overall headwinds facing the higher-education sector, Ciavarelli said the a potential downside could be the university's plan to build more student housing in the future. "I worry that if they start to do that project while this one is ongoing, they may be taking on too much," he said.
RBC's Fox said the university's future housing plans are not yet set in stone.
The deal is set to hit a market that's seeing a "decent amount of high-yield deals," Ciavarelli noted.
"It feels like everybody is trying to get their deals in before the summer lull hits," he said. "So we'll have to wait and see what the pricing is and what else is pricing that week, but among some of the recent student housing deals that have come, this is one of the more interesting stories."
