By Natalie Dolce | National
LOS ANGELES-Student housing has experienced a significant transformation over the past 20 years, and despite the naysayers, the sector remains a viable alternative investment class within multifamily. So says Student Housing panel moderator Peter Katz, executive director of Marcus & Millichap’s Institutional Property Advisor at RealShare Apartments 2013.
“Today, students want a technology advanced lifestyle with greater common area amenities.” And the product out there today varies, Katz explained. “It has been a highly fragmented sector, with private
and owners and operators accounting for 85% of all transactions. The sector still offers higher yields and cap rates than traditional multifamily.”
Among the factors that have contributed to student housing as a “hot investment sector in the multifamily arena,” according to panelists, is that it was a sector that was ignored for years. According to William Talbot, EVP of acquisitions at American Campus Communities, another positive factor is that the percentage of kids attending four-year schools is increasing. In addition, he said, “we are now seeing a modernization of student housing.”
Wes Rogers, CEO of Landmark Properties, agreed, noting that over the last 10 years, the industry “really has matured.” He added that “it is an asset class that is well recognized now…the investment community realized it is a safe place to put their money.”
And the sector has demonstrated defensive characteristics throughout the Great Recession, noted Brian Thompson, SVP of Harrison Street Real Estate Capital. “Looking over the past six or seven years, we had our greatest success from 2008 to 2010.”
According to Brian Dinerstein, president of the Dinerstein Cos., one of the challenges is to “make sure all the folks aren’t chasing the same deals…but it has been a great run.” The challenge, he added, is in the future. “We have a lot of wind in our back with education and demographics. The best days are to come with student housing.”
Timothy Bradley, founder of TSB Capital Advisors, added that “the cost of capital and availability of capital have been indicative of the characteristics that student housing has, and it has helped spawn the sector.”
Rogers also pointed out that there are a lot more developers that have entered the space today than five or 10 years ago. “There has been some talk about overbuilding, and it is certainly going on, but it isn’t wide spread by any means.”
And amenities in the student housing sector today, Bradley said, are comparable to the Four Seasons. “There is a real differentiation between what it used to look like in this space and what it looks like now.” One thing to keep in mind, he said, is that “you have to partner up with the right operators in order to be successful.”
What is worth noting, Thompson said, is that as the space has matured and as the product has been refined, it has become more attractive to bigger institutional groups. “There are portfolio sales today, where five years ago, it was unheard of.” When asked about oversupply concerns, Rogers said that every market is unique. “You have small college towns where it is easy to identify supply, and then you have student housing in larger metropolitan areas like Austin or Seattle where product is intertwined.”
On the demand side, said Rogers, it’s important to look at enrollment, student loan demand, and on the supply side, you have to look at what a university is doing on campus and what is happening off. Long-term success, he said, comes from location, product differentiation, quality management, and new barriers to entry.
In a recent GlobeSt.com video, Katz said that because student housing has become a more accepted multifamily niche from an institutional equity perspective, there’s readily available acquisition financing from Freddie Mac, Fannie Mae and now CMBS. He added that since student housing trades at yield-adjusted cap rates and is still able to get the same exact debt as market-rate multifamily, it’s a very viable industry. More importantly, it’s providing higher cash-on-cash returns and levered yields than market-rate product.