Florida issuer to sell speculative-grade student housing bonds

A speculative-grade student housing bond issue for a Florida university will be priced next week even as other such bonds sold by schools in the state in 2024 have struggled in recent months.

The Miami-Dade County Industrial Development Authority is the conduit issuer for $249.7 million revenue bonds for PRG-Casa Properties LLC, whose sole member is nonprofit Provident Resources Group.

The bonds will have three series ? $236.6 million of senior Series 2026A-1 bonds with a final maturity in 2065, $1.6 million of senior Series 2026A-2 taxable bonds with a final maturity in 2033, and $11.5 million of Series 2025B subordinate bonds with final maturity in 2065 ? and are scheduled to price Tuesday, with KeyBanc Capital Markets as the sole underwriter.

S&P Global Ratings rates the senior series BB-plus with a stable outlook and doesn't rate the subordinate bonds.

Bond proceeds will be used primarily to buy 4.75 acres of land near Florida International University's University Park campus in Miami and build a 820 beds of student housing.

"It's a different name and that always attracts a crowd ? even with people that might have been burned by names like Brightline for example," said Cumberland Advisors Chief Investment Officer John Mousseau, who said the bonds' rating is too low to be of interest to Cumberland.

"The demographics of colleges continue to be challenging from an applications standpoint," Mousseau said. Florida International University "continues to draw well and is a value proposition versus private schools."

S&P said it expects continued enrollment growth at FIU, which is adjacent to the planned Sweetwater, Florida, student housing. FIU's University Park campus is about a nine-minute walk from where the housing will be built.

S&P also noted official student housing occupancy hovers near 100% with a waitlist of about 1,000 students. Finally, the bonds will be backed by debt service reserve funds, with maximum annual debt service and construction contingency accounts totaling 7.5% of project's hard cost.

S&P mentioned new construction risk and a break-even occupancy at about 78% in the first full year of operations as a negative. It also said the bonds' pledge of revenue came without recourse other than backup accounts.

Demand for student housing will be partially offset by the university adding 1,000 beds by fall 2028, an off-campus project offering 700 beds opening in fall 2027 and an additional 1,600-bed project potentially opening by fall 2029.

S&P also cited projections of debt service coverage at just 1.1 times in the first year of operations.

The bonds have a rate covenant of 1.2 times for the senior bonds and 1.1 times for the subordinates.

Neither Provident Resources Group nor KeyBanc responded to a request for a comment.

Two other Florida student housing bonds sold with speculative ratings in 2024 have shown signs of credit weakening in recent months. Moody's downgraded Florida Capital Projects Finance Authority student housing revenue bonds issued for the PRG-UnionWest Properties LLC project to Ba3 from Ba1 on Dec. 11 and revised the outlook to negative from under review.

The proceeds were used to purchase and renovate a 15-floor mixed-use building, called UnionWest, in Orlando, that houses students of the University of Central Florida and Valencia College.

The sole member of PRG-UnionWest Properties is Provident Resources Group.

Separately, the borrower for Florida Development Finance Corp. student housing revenue bonds, SFP-Tampa I LLC, drew on reserves and subsequently posted about the draw to the Municipal Securities Rulemaking Board's EMMA website on Dec. 4.

SFP-Tampa I LLC used the proceeds primarily to purchase The Henry building in Tampa near the University of Tampa and the University of South Florida's Health Services campus.

Fitch Ratings rated the senior SFP-Tampa I bonds BB-plus at issuance in June 2024. It lowered its outlook to negative from stable in April.