Student Housing Investment Remains Uncertain, S&P Says

Some pension funds and other institutions have taken big positions in the segment.

Even with the fall semester roughly two months away for most colleges and universities, many students still have little certainty whether they’re returning to campus or whether they should just stay put. 

Neither do investors of student housing. For the moment, it seems the short answer is that little has changed. Pre-leasing data shows a slight decline, just 0.7 percentage point for schools that were planning for in-person instruction from the same period last year, according to a June report from American Campus Communities, which is one of the largest owners of student housing properties in the United States.

But there are plenty of challenges ahead. Many are waiting to see what lawmakers and university presidents will decide.

Student housing is considered a relatively niche commercial real estate investment. But institutional investors have made significant investments in the past. In 2018, the Canada Pension Plan Investment Board (CPPIB), Singapore sovereign wealth fund GIC, and property management firm Scion Group made a $1.1 billion acquisition of 24 US student housing properties. The portfolio had a mix of Class-A properties in mostly tier-1 university markets. 

Depending on the speed of recovery, student housing properties for larger, affluent public or private universities will continue to perform well, according to a report from S&P Global Ratings. Large endowments or government funding will help them weather headwinds.

Not so for housing properties at smaller colleges, which will suffer given that they’re already seeing falling enrollment. 

“The COVID-19 pandemic will likely exacerbate these trends, which will in turn affect student housing properties that primarily cater to these colleges,” S&P Global Ratings analysts wrote.

In the short term, the analysts write, a possible spike in coronavirus cases could weigh on the performance of student housing properties. But in the long run, how online learning will shape higher education could forever change the landscape. 

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