Student housing in major college and university towns has been one of the steadiest performing niches in real estate throughout the current down cycle. After all, no matter what's going on in the economy, college students are still flooding campuses, they still need a place to live, and they strongly prefer private rental housing over dormitories.

So it's great news for investors that Freddie Mac is launching a specialized new loan product for this segment called the "Student Housing Mortgage." The loan terms run from five to ten years typically, have interest rates in the mid six percent range this week, and even include interest-only options.

The program is aimed at acquisitions and refinancings rather than new construction, and comes with eligibility criteria that investors and operators need to meet. Here are several of the most important:

• There's a minimum loan amount of $5 million, meaning that the smallest property Freddie wants to deal with will likely be anywhere from 50 units to 80 units.

• Eligible projects need to be convenient to campus -- generally no more than two miles away -- and the university or college itself has to have a substantial number of undergraduate and graduate students -- at least 8,000. If the building is located near smaller colleges and the combined student population is 8,000, that's okay.

• Freddie wants to see lease terms that run from nine to twelve months to ensure solid year-round rental cash flows. Tenants should predominantly be students, but other rent-paying residents are also allowed in the mix.

• Minimum equity investment is 20 percent, and there's a strong preference that the property already be serving as student housing. That's a key requirement because successful student rental units often are configured differently from conventional market units.

For example, student apartments typically have separate, lockable bedrooms with space for just one bed and maybe a shared bathroom. They also have small kitchens and common areas off the bedrooms.

Mitchell Kiffe, a Freddie Mac vice president, says the company is jumping in with this highly-targeted new loan because demand for student housing is soaring, and it's a solid business for owners, even in soft housing markets.

"Some people believe it's recession-proof" if it's well-designed and located in the right place, he told Realty Times in an interview this week.

Published: July 11, 2008

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consumer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.