United States
Student Housing: A Sector in Peril?
The pandemic created immense disruption across the municipal market, particularly in the student housing sector. But with volatility comes opportunity.
PREVIEW
For many years, colleges and universities across the United States have faced challenges arising from aging facilities. While some schools are able to borrow directly or leverage a large alumni base to fund capital improvements, a number of both public and private schools have utilized tax-exempt financing to fund the construction of privatized student housing projects. These public-private partnerships, otherwise known as P3s, have increasingly become the workaround for chronic gaps in public funding. Between 2010 and 2019, there was approximately US$11.1 billion of tax-exempt debt issued to finance P3 projects, including US$6.7 billion over the last five years.1 It is important to note that 2018 saw an abnormally high number of P3 issuance in terms of par amount due to a couple of large transactions, including an over US$500 million issuance for a project at the University of California-Davis. In 2019, we saw issuance return closer to what we have seen in previous years.
There is no question the COVID-19 pandemic has materially impacted the student housing sector. As cases increased in March, nearly every college and university closed its campus for the remainder of the spring semester and ordered students to depart on-campus housing facilities.
Download the PDF to continue reading the article.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal. Because municipal bonds are sensitive to interest rate movements, a municipal bond portfolio’s yield and value will fluctuate with market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the portfolio’s value may decline. Investments in lower-rated bonds include higher risk of default and loss of principal. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value.
ENDNOTES
Source: RBC Capital Markets, P3 Higher Education Market Overview, August 2020.
IMPORTANT LEGAL INFORMATION
This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice.
The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. All investments involve risks, including possible loss of principal.
Data from third party sources may have been used in the preparation of this material and Franklin Templeton ("FT") has not independently verified, validated or audited such data. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments opinions and analyses in the material is at the sole discretion of the user.
Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own financial professional or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.
Issued in the U.S. by Franklin Templeton Distributors, Inc., One Franklin Parkway, San Mateo, California 94403-1906, (800) DIAL BEN/342-5236, franklintempleton.com - Franklin Templeton Distributors, Inc. is the principal distributor of Franklin Templeton U.S. registered products, which are not FDIC insured; may lose value; and are not bank guaranteed and are available only in jurisdictions where an offer or solicitation of such products is permitted under applicable laws and regulation.
You need Adobe Acrobat Reader to view and print PDF documents. Download a free version from Adobe's website.
Franklin Templeton Distributors, Inc.
