Texas A&M buys six P3 student housing projects

Momentum Village at Texas A&M Corpus Christi was among the P3 student housing projects acquired by Texas A&M University System through bond sale proceeds.

Texas A&M University System purchased six student housing complexes on three of its campuses, ending the public-private partnerships the system had in place.

Through a $256 million sale of taxable revenue bonds, TAMUS last week bought six complexes in Galveston, Corpus Christi and San Antonio. The deal defeased bonds issued by New Hope Cultural Facilities Finance Corp.

“We chose to take advantage of low-interest rates in purchasing the properties at Galveston, Corpus Christi and San Antonio,” said TAMUS spokesman Laylan Copelin. “The P3 housing in College Station was not part of the transaction.”

TAMUS has been a leader in development of student housing through public-private partnerships, but this deal marks another move out of them. Last year, TAMUS used a taxable series of Revenue Financing System bonds to buy three P3 student housing facilities on the campus of Tarleton State University, another of TAMUS’ 11 universities.

After this sale, New Hope will still have about $268.2 million of outstanding debt for P3 partnerships involving the A&M System, officials said.

The complexes sold to TAMUS under an existing option were developed by Collegiate Housing Foundation, a non-profit 501(c)(3) tax-exempt organization established in 1996 to develop student housing. CHF owns and operates 62 student housing facilities of over 41,000 beds in 24 different states for 47 different schools. Project costs exceed $3.3 billion, the company says.

The purchase price of the six TAMUS properties was the amount needed to pay off the New Hope bonds plus interest and other accrued charges, said William Givhan, president of CHF.

“While the pandemic certainly had a significant impact on these projects as it did the entire student housing sector, as has been disclosed in numerous disclosure filings, most of these projects were already struggling to meet their debt covenant obligations due primarily to low occupancy resulting from low enrollment,” Givhan said.

“Notably, CHF continues to own other P3 projects for the Texas A&M System which continue to perform well, notwithstanding the pandemic,” Givhan added.

During its spring and summer 2020 semesters TAMUS shifted all classes to remote learning. Most students returned home, although TAMUS kept core facilities open for students without safe alternatives and to provide key services. For fall 2020, the system reopened its campuses and designed a mix of in-person, online and hybrid classes.

The bonds TAMUS issued to buy the complexes carried top ratings from three agencies.

The deal allows TAMUS to pass on savings to its students, according to S&P Global Ratings analyst Mary Ellen Wriedt.

“While there is a high level of uncertainty regarding the duration and extent of the impact of the COVID-19 outbreak, we believe that the system has taken prudent steps to address its COVID-19 concerns,” Wriedt wrote. “The system transitioned to remote learning in mid-March, and the system issued prorated refunds on the housing and dining fees to those no longer using the services. Summer 2020 enrollment increased on a systemwide basis. Applications for the College Station campus were up significantly for fall 2020, but systemwide freshman applications were down 4% to 106,256.”

Revenue Financing System debt is a general obligation of the TAMUS Board of Regents, secured by a lien on and pledge of a broad pledge of system-wide revenues and available fund balances. Pledged revenues exclude state appropriations.

For fiscal 2020 that ended Aug. 31, pledged revenues totaled $2.6 billion, with an additional almost $900 million of pledged fund balances, for a total of about $3.5 billion available to pay debt service on $3.7 billion of RFS debt, per Moody’s Investors Service.

Another source of bonds for TAMUS and the University of Texas System is backed by the Permanent University Fund, an endowment built on revenues from state lands. TAMUS receives one-third of the annual distributions from the PUF, which it pledges to its own issuance of PUF debt.

Before the pandemic emergency was declared in March 2020, Moody’s downgraded $353.7 million of New Hope bonds to Caa1 from B3. The bonds were issued in 2015 for a student housing project on the College Station campus known as Park West.

The downgrade on Feb. 26, 2020 cited the project’s inability to cover operating expenses and debt service payments.

“The project faces a prolonged period of severe financial stress that will likely lead to taps on the DSR [debt service reserve] fund over the near term,” Moody’s said.

Fitch Ratings expects a short-term recovery in student housing.

“Fitch believes remote learning is here to stay, but expects on-campus and university-affiliated housing demand to be near pre-pandemic levels for the 2021-2022 academic year,” analysts said.

“This could prove to be a positive for student housing public-private partnerships, with colleges and universities potentially turning to private student housing when expanding housing stock, given already constrained housing supply on many campuses.”

CHF’s Givhan said the short-term outlook “is entirely dependent on how far the vaccines go towards moving enrollment and occupancy back to normal in the upcoming academic year.”

“For the long term, it would appear that the privatized housing model will continue to be an attractive option for schools,” he said. “We are currently working on two large new projects — one on the west coast and one on the east coast — that are scheduled to close in the next 30-45 days and are responding to several RFPs from other schools currently pursuing new privatized housing projects.”

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