Texas Luxury Student Dorm Financed by Bonds Falls Deeper Into Distress

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

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NCCD-College Station Properties LLC failed to make a complete 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 fast-growing enrollment at the school. While the complex boasts volleyball courts, three resort-style pools and a clubhouse, it is located in an area that’s far away from restaurants and entertainment venues.

An audit of the borrower by accounting firm Maxwell Locke & Ritter LLP last year said failure to refinance the debt or boost its revenue to meet the debt payments “could result in the company having to curtail or cease operations.”

A Texas conduit agency sold over $360 million of municipal bonds for the project on behalf of the company in 2015, and most of that is still outstanding, according to data compiled by Bloomberg. The sole member of the LLC is National Campus and Community Development Corp., a nonprofit that finances 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 rent are “hampered” by the project’s isolated location on the south end of the College Station campus. The facility is about a 30 minute walk from Texas A&M’s main plaza at the center of campus. Rent growth is expected to lag, the ratings company said.

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

Privatized Housing

Colleges have privatized student housing projects to avoid taking on debt for new facilities, which represent one of the riskier corners of the municipal bond market. Such projects have come under pressure in recent years by the pandemic, which emptied campuses.

Eric Kazatsky, municipal strategist for Bloomberg Intelligence, said many student housing projects are still in recovery mode. “What exacerbates the issue are low reserve levels, which many of these projects suffer from. That would protect them on the downside,” he said.

Ajay Thomas, the Austin-based head of public finance at FHN Financial Capital Markets, said colleges broadly are “struggling with the elevated needs to have facilities.”

“There is real competition for this increased enrollment or steady enrollment of students that are coming in,” he said. “That’s why I think some of these universities have been wise to offload that risk.”

Texas A&M didn’t take on any debt in connection with the Park West complex. A spokesperson for the university declined to comment.

The borrower previously failed to pay principal due on the bonds in July 2022. Some of the project’s funds will be used to pay some of that previously-missed principal payment, according to the filing from the trustee, UMB Financial Corp.

Read More: Texas College Housing Complex With Rooftop Pool to Default

Still, the largest bondholder, Nuveen, struck an optimistic tone about the housing complex.

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

–With assistance from Skylar Woodhouse and Marisa Gertz.