Get Flexible CMBS Financing for Your Student Housing Property
With nearly 20 million students attending college per year in the United States alone, there’s never been more demand for high-quality student housing— and, if you’re a student housing investor, a CMBS loan could be the perfect way to finance your investment.
Despite shocks from the COVID-19 pandemic, student housing occupancy has remained strong across the U.S., particularly in the South, where many state colleges and universities boast growing student populations. Studies suggest that American colleges and universities have on-campus dorm space for only about 22% of their student population, meaning that student housing is an essential way to fill this gap.
Like CMBS and conduit loans for other property types, CMBS student housing loans offer low, fixed-rate terms, and are available for a wide variety of borrowers. Conduit loans are also fully assumable with servicer approval and a small fee, which can make the property sale process less expensive, as borrowers may be able to avoid strict prepayment penalties. This may also make the property more attractive to potential buyers, particularly in an environment of rising interest rates.
Common Uses for CMBS Student Housing Loans
Student Housing Acquisitions: CMBS loans can be a fantastic option for acquiring new student housing properties. In general, new acquisitions must be located within a reasonable distance from a college campus, often less than two miles, and must serve a college or university with a student population of at least 10,000.
Moderate Rehabilitation: If you already own a student housing asset, getting a CMBS cash-out refinance could be a great way to improve it by taking steps such as adding new landscaping or adding amenities like gyms or recreational areas. This can allow you to increase rents, increasing your property’s competitiveness and, potentially, your overall profit margins.
Refinancing New Construction: Newly constructed student housing properties are often saddled with high-interest post-construction bridge loans loans from banks or private lenders. Fortunately, refinancing with CMBS can significantly reduce your interest rate and overall liability due to the fact that conduit loans are generally fully non-recourse.
Eligible Multifamily Property Types for CMBS Loans
Purpose-Built Student Housing: CMBS financing can be a great choice for housing complexes specifically built for students. Sometimes, these complexes have multiple beds per room. As mentioned earlier, these properties generally must be located relatively close to a campus with a student population of at least 10,000.
Traditional Apartment Buildings: CMBS loans can sometimes finance apartment buildings not purposely intended for students, but which have a high student population.
On-Campus Private Housing: Sometimes, private student housing is located on college campuses, which often involves student housing operators taking out long-term ground leases on the property in question. Depending on the nature of the lease and the property, these assets are also often suitable for CMBS financing.
Mixed-Use Properties: Mixed-use property developments are more popular than ever for traditional multifamily investors, but sometimes, student housing developments also function as mixed-used properties, often combining casual restaurants on the bottom floors with student-oriented housing on top.
Prospective Terms for CMBS Student Housing Loans
Unlike bank loans or life insurance company loans for commercial properties, or Fannie Mae, Freddie Mac, and HUD multifamily financing for apartment properties, CMBS loans have relatively lenient borrower requirements.
CMBS terms and requirements typically include:
Loan Size: $2 million+, no maximum loan amount
Loan Terms: 5, 7, and 10-year fixed-rate terms, interest-only (I/O) financing available for well-qualified borrowers
Amortization: Generally 25-30 years
Eligible Properties:
Must generally be located within 1-2 miles of a college or university with a student population of 10,000 or more.
Management should be specifically experienced in operating student housing.
Properties must remain above 1.00x DSCR, even in the summer season, as student housing leases often run between May and August, leaving a potential gap in income during the summer.
Properties with multiple beds per room and private student housing located on college campuses may be eligible in some conditions, but are generally harder to finance.
LTV/DSCR: 75%/1.25x
Loan Pricing: Pricing based on current swap rate or relevant U.S. Treasury rate, LTV and DSCR, as well as asset quality, rate buydowns available in some situations
Loan Assumption: Fully assumable pursuant to master servicer approval and a fee, generally 1%
Prepayment: Yield maintenance or defeasance
Recourse: Generally non-recourse with standard bad-boy carve-outs for issues like fraud, embezzlement, or international bankruptcy
Third-Party Reports: Third-party reports are paid for by the borrower, and typically include:
Full appraisal
Phase 1 ESA (Environmental Assessment)
Property Condition Assessment (PCA) is often required
Rate locks: Available at loan commitment, 30-day rate locks may also be available with lender approval
Replacement Reserves: Typically required and paid for by borrower on a per-year, per-unit basis, may be waived or reduced in some situations, particularly for Class A assets
Lender Legal Fees: Generally $15,000 for smaller loans, larger for larger loans
Origination Fees: Generally 1%, can be higher in some scenarios