Those of us in the student housing profession have been facing complicated challenges because of the COVID-19 pandemic. With campus closures and the rapid pivot from face-to-face to remote learning, students were required to vacate campus housing communities to comply with directives coming from various state governments and associated educational agencies. As a result, multitudes of institutions also refunded various student fees, including housing and dining charges. This posed a myriad of systemic implications for student housing public-private partnerships (P3) given the complexity of the business relationships that exist with this type of arrangement. While universities with wholly owned housing portfolios will certainly suffer the effects of refunding millions into tens of millions of dollars for housing fees, universities with P3’s, on the other hand, will face unique financial and operational challenges.

Because of the various entities that are involved in a student housing P3, the effects will not simply be confined to a campus to manage. Between ownership entities, operating firms, investors, underwriters, and various campus departments, there will plenty of shared distress to go around. In some cases, the host university has picked up the bill for refunds given to students mandated to vacate while in other cases the project itself may dip into their own reserves to cover this.

The Downside

S&P Global and Moody’s Investors Service have already negatively downgraded the outlook for multiple privatized student housing projects given the precarious situation that colleges and universities will face with the challenges of paying debt service. The uncertainty with how the 2020-21 academic year will play out adds to the situation as institutions that decide to go to fully remote will quickly put P3 campus projects in financial risk. Financial stress will still occur even if there are plans to open, but with decreased occupancy to conform to social distancing standards. Given the partnership dynamics that exists, any direct and / or subordinate personnel expenses will be negatively affected resulting in the potential for position layoffs. Additionally, any net revenues contributed to the university will essentially be eliminated should debt covenants not be met. This will have ripple effects throughout the institution as those funds are utilized for operational expenses, discretionary projects, and even student scholarships that feed a recruitment and retention strategy.

The Upside

Privatized housing that offers apartment-style housing in most cases is more suited to accommodate the types of conditions for prevent the spread of COVID-19. Apartments with single bedrooms, bathrooms, and full kitchens can easily house two to four students each unlike large residence hall buildings that can house dozens to hundreds of students on a single floor. Universities that have P3 arrangements with affiliates with apartments are better positioned to permit students to remain with a certain level of social distancing that can not necessarily be accommodated elsewhere. Additionally, institutions that do not panic with occupancy management decisions and responsibly balance business operations with CDC guidelines will certainly weather the storm quicker.

The Outlook

Given the ability for the higher education industry overall to bounce back from the pandemic financial crisis, analysts are relatively confident that student housing will get back to normal from a cashflow, construction, and credit standpoint. P3 projects are typically positioned to have reserves that can help to alleviate short-term financial distress. Also, given that the universities will typically step in to help with a short-term emergency, the outlook is even more encouraging. Seeing the hope for a vaccine on the horizon, the stress on P3 communities is temporary and should not extend over the course of multiple years.

_{Helfrich Advisory Services, LLC is a boutique consultancy that specializes in college and university Housing Operations and Residence Life development, including the public-private partnership (P3) market. With 20-years of professional experience, my mission is to be a leading provider of affordable and practical solutions for the college and university student housing industry.}