Luxury Bond-Funded Texas Student Dorm Falls Deeper Into Distress

(Bloomberg) — A huge luxury student housing complex in Texas is still showing signs of financial trouble.

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NCCD-College Station Properties LLC failed to make full payment due July 1 for bonds issued to build the complex near the Texas A&M University campus in College Station, according to a regulatory filing.

The project, known as Park West, has struggled despite the school’s rapidly growing enrollment. While the resort has volleyball courts, three resort-style pools, and a clubhouse, it’s located in an area far from restaurants and entertainment spots.

A borrower audit by accounting firm Maxwell Locke & Ritter LLP last year said that failure to refinance debt or increase revenue to meet debt payments “could force the business to reduce or cease its activities”.

A Texas intermediary agency sold more than $360 million in municipal bonds for the project on behalf of the company in 2015, and most of those bonds are still outstanding, according to data compiled by Bloomberg. The sole member of the LLC is National Campus and Community Development Corp., a nonprofit organization that funds student housing projects.

Caroline Oakes, executive vice president of National Campus and Community Development, declined to comment.

Moody’s Investors Service analysts said last year that efforts to raise rents were “hampered” by the project’s isolated location at the south end of the College Station campus. We are approximately a 30 minute walk from the main Texas A&M plaza in the center of campus. Rent growth is expected to lag, the ratings firm said.

Servitas, which manages the 3,400-bed complex, says the project was one of the largest public-private partnerships for student housing in the United States.

Privatized accommodation

Colleges have privatized student housing projects to avoid going into debt for new facilities, which represent one of the riskiest corners of the municipal bond market. These projects have been under pressure in recent years by the pandemic, which has emptied campuses.

Eric Kazatsky, city strategist for Bloomberg Intelligence, said many student housing projects are still in recovery mode. “Exacerbating the problem are the low levels of reserves, which many of these projects suffer from. It would protect them from the downside,” he said.

Ajay Thomas, head of public finance at Austin-based FHN Financial Capital Markets, said colleges globally were “struggling with high needs to have facilities.”

“There’s real competition for this increase in enrollment or the consistency of student enrollment coming in,” he said. “That’s why I think some of these universities have been advised to offload that risk.”

Texas A&M has not incurred any debt in connection with the Park West complex. A university spokesperson declined to comment.

The borrower had previously failed to pay the principal due on the bonds in July 2022. Some of the project funds will be used to pay a portion of this previously missed principal payment, according to the filing of the trustee, UMB Financial Corp.

Read more: Texas College housing complex with default rooftop pool

Still, the biggest bondholder, Nuveen, struck an optimistic tone about the building complex.

“Park West continues on a positive trajectory with announced pre-leases for fall 2023 showing expected strong occupancy and improving rental rates, which will likely improve net operating income in 2024,” a doorman said. -word from Nuveen in an emailed statement.

–With help from Skylar Woodhouse and Marisa Gertz.

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