Experts in the sector point to just a few common problems that can cause distress: inexperience; bad borrowing; and location, location, location.

Bernstein says a few developers who wanted to capitalize on the sector's invulnerability unwisely sought out land two or three miles from college campuses, thinking that the distance wouldn't matter if top amenities were offered. "Some assets are distressed for a reason-they're not good at any price," he says. "You've got those assets where a developer found a piece of land three or four miles away and built the same type of property they have near campus, thinking he could get the same rates. Students just don't want to be that far away."

Matt Garrison, a partner at South Street Capital in Chicago, says that his group refuses to act on property that is more than a few blocks from any campus. "If you're within two to three blocks from a school that has 25,000 or more students, you can make a lot of mistakes and still be 100% occupied," he says. "It usually takes some outside force to take you off track."

Garrison says the distress he's seen in good locations usually comes from an owner that has global portfolio problems, namely assets in other sectors that are doing poorly and affecting the student housing holdings. "We had a 106-bed property at Purdue University-Chauncey Square-where the developer got the project half built but then had troubles with his assets in Florida," Garrison says. "We bought the note and got control of the collateral through bankruptcy. It was the classic story where an owner had to give up a good asset because of other properties dragging him down."

The largest reason for student housing distress has been mismanagement by newcomers who don't know the proper way to market and run the property, says James Tramuto, an executive vice president with Jones Lang LaSalle's Capital Markets group in Houston. "You have these people who may have a kid in college. They see how great multifamily is doing and they think these things can lease themselves," Tramuto says. "You have to be better than a good property manager with student housing. You have to be on Facebook and other social media, you have to market on campus and you have to have pool parties and work with high schools and career counselors."

He says he had one deal at Baylor University in Waco, TX where a developer built a $7.5-million asset right next to campus, but couldn't get it more than 65% leased. "We brought in a client of ours who bought the note from the bank for $3 million, and in less than six months they had it 100% leased and now have it valued at $6 million. The original developer just didn't know how to manage the property."

Isaac Sitt, co-CEO of Vesper Holdings in New York City, says that while he's seen very little distress, he has had some examples of misdirected development. "We had an opportunity to buy the Woodland Mews property in Ann Arbor, MI, where virtually everyone in the city is somehow connected to the University of Michigan," says Sitt. "Sam Zell sold the project when it was a condo conversion in 2006, and the developer paid about $41 million to try to convert it, but could only sell about 25% of the units. Some local folks bought the rest of the condos, and then turned around and sold us the property for significantly less than $20 million. We have gone in with a capital budget to make it modern and appeal to students, and brought in Campus Apartments to manage it and it's now 99% occupied."

A few developers had debt problems because of the massive debt ratio available for student housing, Sitt says. "We've seen properties where they were allowed 90% to 95% leverage" because they were projecting 5% to 6% growth, but they've been getting flat or 1% growth. They're distressed only because of the way they were underwritten, he says. "Brokers love distress in this sector. When you have a regular student housing deal out there, it gets maybe 10 bids. If it's distressed, there are at least 25 bids on it."

Tramuto says there are other pitfalls that those experienced in the sector have learned to avoid. A college can decide to require all freshmen and sophomore students to reside oncampus, instantly devaluing all offcampus housing, he says. Or a university can put a cap on enrollment. "If you have a school where enrollment is capped or semi-capped, and you have four or five developers delivering 3,000 beds, that just cannibalizes all the projects," Tramuto says. "You can have the shiny new product, but still not get the rates you thought you would get."

Success for the sector hinges on experience, either by the developer or the hired property manager. Proximity to campus and amenities offered, also play a role. Lending, fortunately, is still strong, in part because of the participation by Fannie Mae and Freddie Mac in the sector, says Bernstein. "We avoided the credit crunch because we've always been able to turn to Fannie and Freddie to help refinance acquisitions or exiting portfolios," he says. "There's been debt, whereas other sectors had the gun to their heads when CMBS and other wells dried up." Garrison says multifamily is already in favor, and the banks that do student-housing loans are not usually located in the big cities, meaning they likely didn't get burned on a lot of condo deals. "The sector is pretty much still plodding along at 80% loan-to-value with lenders competing for deals," he says.

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