A 168 bed student housing deal underwritten on enrollment that never needed a bed
This is a loss worth studying closely, so here is the arithmetic. Take 168 beds off campus at a mid-tier private university, $18.9m purchase, about $112k a bed. The raise is $6.2m of common equity with tickets as small as $75k. The sponsor shows a 6.0% year one cash distribution and a five year hold. The demand slide says total university headcount is up 4% over five years. That number is true. What it does not separate is delivery mode. The growth is an online graduate program that adds roughly 900 students who live wherever they already lived. Residential undergraduate headcount over the same five years is down about 11%, and first year retention has slipped under 70%. A deal like that closes at 94% preleased for the coming academic year, which is why nobody looks harder. The following August it opens at 79% with one month free on anything signed after July, so effective rent per bed comes down about 7% on top of the vacancy. Distributions drop to 2.1% annualized in year one, then to zero in month 14 when the lender wants a $410k reserve funded before it will discuss the maturity. An exit through a secondary transfer to another limited partner at 0.58 of contributed capital turns $75k in into $43,500 back. That is $31,500 gone, plus two years of no cash on money that had another job to do. The two corrections are simple. Pull the school's own enrollment data, split by degree level and by whether the student is on campus at all, before reading a single page of the sponsor's demand section. And read the transfer language before wiring rather than after, because the discount a seller accepts in a secondary is partly a function of how few buyers that clause allows.
