The projects are developed and managed by private companies.

Few Restrictions
Few restrictions apply to tax-exempt financings by non-profit entities, said Mark Scott, a former head of the U.S. Internal Revenue Service’s Tax-Exempt Bond Office. “The real question is why an entity that builds luxury apartments is entitled to non-profit status," he said.

Park West, which is located closer to Texas A&M’s 102,733-seat football stadium than to academic buildings, opened at the flagship school in fall 2017. The 5,200 acre campus, about 90 miles northwest of Houston, has more than 55,000 students and enrollment has grown at an average annual rate of 2.7 percent per year, between 2005 and 2015.

A market study that accompanied the 2015 bond offering for Park West said there was ample demand for the project. But Park West only rented 54 percent of beds in the fall semester and 52 percent in the spring, according to S&P.

Management told S&P the market study didn’t capture all the new housing supply coming on line in the area surrounding the campus. S&P downgraded the bonds eight levels to CCC in December.

Park West competes in a Class-A off-campus student housing market of 25,000 beds that grew an average of nine percent a year between 2014 and 2017, triple the annual enrollment growth at Texas A&M, according a market assessment commissioned by National Campus. More than 2,400 beds are slated for delivery in fall 2018.

“The top end of the market remains extremely competitive," according to an evaluation by Meyers Research. Rents declined 3.2 percent in 2017, the firm said.

Rents Down
To fill beds, Park West cut rents on many units below $600 a month, according to Meyers. Almost 90 percent of beds are pre-leased for the fall semester, but the revenue shortfall means that the project will need to draw on reserves through 2021 to pay debt service while gradually raising rents.

The forbearance agreement gives bondholders, led by Nuveen Asset Management, the right to review and approve budgets and get weekly leasing reports. Bondholders agreed to allow revenue to pay operating costs first and then debt service.

John Miller, Nuveen’s co-head of fixed income, declined to comment. Nuveen owns 43 percent of the bonds, according to data compiled by Bloomberg. The Vanguard Group is the second-biggest holder with about 17 percent.