Deserted College Dorms Sow Trouble for $14 Billion in Muni Bonds

More than $14 billion in municipal bonds were sold to finance student housing projects.

(Bloomberg)—Less than a third of the rooms in a new $90 million dorm set to open this month at the California College of the Arts in San Francisco are taken. An opulent apartment tower financed by $228 million in municipal bonds at Florida International University, with a rooftop pool and gym, hasn’t yet met tenant projections.

It’s a scene playing out on campuses across the U.S. as families skip the usual college move-in frenzy, leaving thousands of dorm rooms empty. That will cascade into the more than $14 billion of municipal bonds sold for student housing, particularly securities sold by private companies relying on rental and leasing revenue to pay bondholders. It’s one of the first places where investors who bet on higher education can expect trouble because of the pandemic.

Colleges for years have been turning to private companies for student housing to shed costs and lure students with state-of-the-art facilities. The companies borrowed the money for construction from municipal bond investors, with a promise to repay with rent and lease revenue. But with schools switching to virtual learning or limiting the number of students who can live on campus, the bonds that are often already risky are facing a major threat.

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