Bond-financed luxury dorm in Texas is in dire straits

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

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

Known as Park West, the project has struggled despite rapidly growing enrollment at the school. While the complex has volleyball courts, three resort-style pools, and a clubhouse, it's in an area far removed from dining and entertainment options.

An audit of the borrower by accounting firm Maxwell Locke & Ritter LLP last year found that failure to refinance the debt or increase its earnings to meet debt repayments “could result in the company reducing or ceasing to operate.” must”.

A Texas conduit agency sold more than $360 million worth of municipal bonds for the project on behalf of the company in 2015, and most of that is still outstanding, according to data from 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 at National Campus and Community Development, declined to comment.

Analysts at Moody's Investors Service said last year that efforts to raise rents were “hindered” by the project's isolated location on the south end of College Station's campus. The facility is approximately a 30-minute walk from Texas A&M's main square in the center of campus. Rental growth is expected to lag behind, 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 housing

Colleges have privatized student housing projects to avoid incurring debt for new facilities, which is one of the riskier areas of the municipal bond market. Such projects have come under pressure in recent years from the pandemic, which has resulted in empty campuses.

Eric Kazatsky, community strategist at Bloomberg Intelligence, said many student housing projects are still in recovery mode. “What exacerbates the problem is the low reserves that many of these projects suffer from. That would protect them from below,” he said.

Ajay Thomas, the Austin-based director of public finance at FHN Financial Capital Markets, said that colleges, by and large, are “struggling with the increased need for facilities.”

“There's real competition for that increased enrollment or steady enrollment of students,” he said. “So I think it was wise for some of these universities to shift that risk.”

Texas A&M has no debt related to the Park West complex. A spokesman for the university declined to comment.

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

Read more: Texas College Condominium With Rooftop Pool No Longer Available

Nonetheless, the largest bondholder, Nuveen, expressed optimism about the condominium complex.

“Park West continues its positive development. Reported fall 2023 pre-lets show strong expected occupancy and rising rental rates, likely leading to an increase in net operating income in 2024,” a spokesman for Nuveen said in an emailed statement.

– With support from Skylar Woodhouse and Marisa Gertz.

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