Students fled home, took classes online—still had to pay full tuition.

First in a Series

By Patrick Nelson

          The government response to the Covid-19 pandemic was rough on most of the nation’s seven million businesses. Each year 600,000 businesses close their doors, and in the first year of the lockdown this increased by an extra 200,000 casualties.

          Some of us struggled more than others to survive. My business, college student housing, took an especially hard hit. In the Covid crash, campuses shut down, millions of students left school for home, and everyone switched to online classes.

          This hurt incoming rent revenues at my privately owned firm, Nelson Partners. We are a small player in the off-campus market, which encompasses 4,500 apartment buildings nationwide. We manage 23 investor-owned buildings, worth $900 million, in 13 states.

          The biggest player, publicly held American Campus Communities, just got acquired by Blackstone for $12.8 billion. ACC owns 166 buildings in 71 college towns.

          At Nelson Partners, the sudden glitch in our incoming rents forced us to suspend dividends our investors, which has happened only rarely in our 15 years in business. We had to
halt loan payments on two buildings that then slid into foreclosure. We lost $12 million over all, and we were lucky to get a $2 million PPP loan.

          As for the universities and colleges, they did just fine, thank you. Their lobbyists must be a lot better than mine (we employ none).

          Even after adjusting for inflation, college tuition prices are up 130% since 1990. In the Covid-19 lockdowns, they received billions upon billions of dollars in federal aid. In spite of both financial cushions, schools in most cases kept charging the same high tuition for online classes, a lesser educational experience.

          This seems greedy to me. How did they get away with this stunt? I just paid $200 a ticket to take four of my six daughters to see the Imagine Dragons at the Forum in Los Angeles, and if we saw the concert on a laptop, I would have insisted on paying a lot less. (The 7-year-old and the 3-year-old stayed home).

          While the schools raked in billions in aid and tuition, their shutdown of campuses hurt thousands of businesses that rely on college commerce. Including mine.

          When the Covid lockdown began, maybe 20% of the students in our buildings left abruptly and never returned, depriving us of incoming revenue. In our site near the University of Houston, we lost 40% of our tenants, at Ole Miss the loss was 35%.

          Happily, 80% of our students continued living up to their contracts to pay their rent. But the other 20% stopped paying, even students who stayed on in our apartments They hadn’t lost a job, their parents were covering their room and board, but they stopped paying anyway, because, hey Covid. It’s a crisis.

          The default rate on our incoming rent payments, usually at 1% to 2% of revenue, soared to 15%. Yet we, as property owners, were forbidden from evicting anyone, by order of the Centers for Disease Control and Prevention.

          It is unclear who handed control of our constitutionally protected property rights to a health agency, but it is time we took it back.

          What’s wrong with this picture? Government shuts down businesses and closes college campuses. Then CDC issues the eviction ban, stopping property owners from collecting rent. Yet we had to keep making our debt payments, as usual. Government never intervened on that front to tell lenders that they, too, had to halt collections in the Covid crisis.

          In fact, government played a direct role in foreclosing on one of our buildings. The lender was Ginnie Mae, the quasi-government agency whose “mission is to link the United States housing market to the global capital markets, thus providing low-cost financing for federal housing programs.” Not in our case, apparently.

          Fine, but why protect non-payers and lenders, and leave out property owners? Why hand a gazillion dollars in aid to universities when they had shut down their most costly operations on campus? It feels like more crony capitalism.

          Unelected bureaucrats with zero business experience imposing policies that divided winners from losers. They do this sometimes intentionally, other times cluelessly, and always for the worse.

Patrick Nelson is the CEO and founder of Nelson Partners in San Clemente, Calif.