A new analysis from Trepp shows that Illinois tops the list for student mortgage problems, with the rate of loans that are 30 days or more past due, more than double the national average.
Illnoy also ranks high in the low DSCR and occupancy categories, says Trepp’s Stephen Buschbom. He’s eyeing his $26 million One North and One South loan in Champaign.
“With the DSCR negative since 2019, financials show the struggle is not just COVID-related,” Buschbom wrote. “The watchlist commented that the borrower had invested more than $4 million to renovate the property, but as a result of the sharp decline, several others began aggressively competing for a reduced share of tenants. Leasing has been very difficult because of the number of new student housing communities among international students who have historically been a major demand driver for this market.”
Illinois is followed by Tennessee, which has a delinquency rate more than five times the national average. Buschbom points to Loan, his REO at Johnson Cit. Monarch 815 of East Tennessee State ($30 million).
“Comments in the REO status report follow many costly capital repairs and after years of struggle to settle a significant backlog of issues that were completing foreclosure proceedings against the original borrower. After that, it shows that the property is on a stable trajectory (servicer comments) showing that the red light starts just two years after the loan is securitized),” he says.
Louisiana comes in third with a smaller sample size. East Baton Rouge’s University Edge ($23.4 million) accounts for almost a quarter of his loan balance with a DSCR of less than 1, Buschbom said. The well-performing Park Place Baton Rouge is also on the servicer’s watchlist. Following Louisiana is Missouri, where the Lindell Portfolio ($46.6M) has been on his servicer’s watchlist since November 2017 and has “struggled financially for years.”
Rounding out the top five is Ohio, whose University Edge loan was transferred to a special servicer in March 2022 due to payment default.
“A proposal for change was then made in July, but in September the borrower said the proposal did not work and wanted to help sell the property,” said Buschbom.
Texas, Connecticut, Georgia, Michigan and Kansas followed to finish the top 10 states in Trep’s ranking.
“This subsector is highly competitive and has plagued student mortgages in recent years, given the seasonal leasing and capital-intensive nature (high turnover) of this beast that requires very diligent property management. Only time will tell if some of the recurring stress themes that have been on the rise will resurface, and could quickly get out of hand, especially if inflationary pressures remain behind,” Bushbomb said. say.