2021 Student Housing Market Overview and 2022 Outlook - Flipbook - Page 30
Capital Markets
Driven by accelerating economic conditions and an abundance of excess capital, 2021 appeared to place the COVID-19 pandemic
squarely in the rearview mirror. Robust lending backed by commercial and multifamily assets pushed outstanding mortgage debt to an
all-time high by the close of 2021. While part of the year-over-year growth from 2020 was a bounce-back from the worst of the COVID-19
recession, rebounding property fundamentals, strong valuations, record transaction volumes, and historically low-interest rates all
fueled historic lending. The last 3 months of 2021 witnessed the largest quarterly increase in mortgage debt outstanding on record, as
every major capital source increased their holdings. Once the dust had settled, 2021 would close out with a 7.4 percent annual increase
in outstanding debt, alongside a 19.5 percent increase in underlying property values, according to the Mortgage Bankers Association.
year. While the asset class was the
benefactor of an abundance of capital,
the sources were shifting. Fannie Mae
and Freddie Mac saw student housing
loan volume slip to $0.9 billion and
$1.35 billion, respectively for 2021- a far
cry from 2019’s combined $4.3 billion.
(Forward Curve)
3.50%
3.00%
2.50%
However, alternative capital sources,
namely banks, debt funds, and life
companies rose to the occasion to fill
U.S. TREASURY BOND YIELDS
1-MONTH TERM SOFR
the dislocation in the market.
2.00%
1.50%
1.00%
(January 2022 to Present)
The year closed on solid ground and
with a positive outlook for student
3.50%
housing demand in 2022, but it was not
without macroeconomic headwinds.
3.00%
Ever-increasing
inflation
loomed
-
compounded by supply chain issues,
2.50%
along with a continued run-up on
0.50%
0.00%
5/1/2022
8/1/2022
11/1/2022
2/1/2023
5/1/2023
Market Expectations
8/1/2023
11/1/2023
2/1/2024
5/1/2024
FOMC Dot Plot
Source: FOMC
Treasury yields. The Federal Reserve’s
2.00%
inflation characterization of “transitory” had been retired, replaced with indications of quantitative tightening and future rate hikes
in an attempt to cool inflationary pressures. Volatility further escalated as Russia invaded Ukraine. Global inflationary concerns crept
higher, and oil surged above $130 per barrel in the week after sanctions banning Russian oil were announced. The 10-year Treasury
1.50%
yield surpassed a key threshold of two percent for the first time since January 2019 after the U.S. CPI report came in with a 7.9 percent
year-over-year increase.
1.00%
In March 2022, the Federal Reserve took its first step towards taming inflation and raised its Federal Funds Rate by 25 basis points, the
0.50%
first-rate increase since 2018. More recently, Federal Reserve officials have taken a hawkish tone, pivoting from a gradual approach to
monetary policy to moving “toward a neutral posture expeditiously,” likely suggesting faster and higher rate increases than originally
0.00%
planned. As of April 2022, the market implied the probability of a 50 basis-point hike to the Federal Funds Rate in the May and June
meetings edged to near 100 percent – with a total of 240 basis points of additional rate hikes this year. This would be the first time
since 2006 that the Central Bank hiked rates in consecutive meetings and the first time since 2000 that rates increased by 50 basis
points. Further, the Federal Reserve signaled it will reduce bond holdings at a maximum pace of $95 billion per month, almost double
2 Yr
5 Yr
7 Yr
10 Yr
30 Yr
Source: U.S. Department of the Treasury
the pace of the last ruff-off in 2017-2019.
Lending base rates tend to track the Federal Funds Rate closely, informing expectations for LIBOR and SOFR to rise in tandem.
Looming rate hikes have primarily impacted borrowers with increased hedging costs but are not historically restrictive. While interest
rate volatility, cap costs, and borrowing spreads grab all the headlines, the market is still flush with liquidity and a wide array of
Once mired in COVID-19 uncertainty, the student housing sector rebounded in 2021 alongside an abundance of liquidity in the debt
markets. With a renewed focus on Power-5 markets and strong underwriting, lenders surged back into the space last year after waiting
on the sidelines in 2020 and observing as the asset class touted as recession-resilient would ultimately live up to its name – emerging
from the pandemic largely unscathed. Transaction volume skyrocketed to $10.3 billion in 2021, a 62 percent increase over the prior
2 0 2 1 S T U D E N T H O U S I N G M A R K E T O V E R V I E W A N D 2 0 2 2 O UT L O O K
financing options for purpose-built student housing. Banks and debt funds continue to bid aggressively on a wide array of value-add
student housing opportunities, while life companies continue to offer very attractive terms for the core, pedestrian product at Power-5
universities. Further, Fannie Mae and Freddie Mac are looking to increase their student housing lending and have implemented multiple
spread cuts as they look to increase market share and accelerate lending towards the FHFA 2022 regulatory caps ($78 billion per
enterprise).
NEWMARK
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