Not Animal House Anymore

By Sule Aygoren Carranza

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Apparently, student housing is all the rage (or, as I prefer to say, rah-jay) when it comes to niche sectors within the multifamily industry. I knew the sector was doing well, but just how well it was doing came as a bit of a surprise to me as I listened to speaker after speaker at the National Multi Housing Council’s 2010 Student Housing Conference and Exposition in Washington, DC last week.

Those of you who follow me on Twitter probably saw my tweets on the sessions held throughout the two-day meeting, which was pretty well attended by developers, investors, operators, capital sources and folks in other segments of the market. One very telling sign of the market’s interest in student housing was in the attendees: one speaker asked audience members to raise their hands if they’re first-time attendees of the conference, and a good amount of people were. Then he asked attendees to raise their hands if they’re not currently involved in student housing, and most of those same hands were raised.

Obviously, the sector’s popped up on many industry participants’ radar screens.

And for good reason, according to those who spoke at the event. The mantra repeated during the State of the Industry session was that student housing is a growth sector with good prospects, and investors are beginning to view it as a viable and defensive investment. The panel gathered some of the biggest names in the business, including American Campus Communities’ Bill Bayless, Campus Apartments’ David Adelman, Jared Schenk of Schenk Realty Group and Randy Churchey of Education Realty Trust.

They, along with other presenters, stressed how well student housing did during the downturn. Other reasons for optimism:

• Demand is on the rise: The student population is growing, thanks to the influx of echo boomers and more high schoolers choosing to move on to college, as well as readily available student loans. Plus, it’s taking longer than the typical four years for many students to obtain a degree. One oft-repeated statistic was 1.5% annual growth in college enrollment for at least the next few years.
• Continued revenue growth: Rents are rising, as are the pace of leasing and renewals. Operators expect to see revenue figures soar in the next decade.
• Supply is in check: Developers have been smart about building new product.
• Capital sources like it: Operators and developers with good track records are having few issues finding institutional equity and attractive debt.

It’s not as if the economy hasn’t impacted the sector at all; many private universities are losing funding as donations decline. But even that is presenting opportunities: large, state universities are still getting public funding, and with the rising costs of higher education, more students are choosing to attend lower-cost public schools. And, even with the private institutions, developers could build housing on campus and just pay ground rent to the school. And for those who don’t want to operate the facilities, third-party development has great prospects as well.

To be sure, student housing does have its share of challenges. For instance, you’re not only catering to one set of tenants, you’d be catering to the students, their parents as well as the university—at least, in the case of on-campus housing. There are also technical issues to sort through; there’s little in the way of operating software for the sector, and figuring out the use and payment of utilities can be tricky.

But for those willing to take on these hurdles—or, at least, hire an experienced property manager to oversee their assets—student housing is a great option to consider. As the speakers at NMHC’s conference concurred, the next year should be a “banner” one for the sector, and it will only go up from there.

So if student housing isn’t yet on your radar screen, it should be. And we’ll see just how much better the sector is doing next year, as industry professionals gather for the RealShare Student Housing conference. It’s going to be held at the Four Seasons Resort and Spa Dallas at Las Colinas, TX on May 9-10—maybe I’ll see you there!

(To search across all ALM blogs, go to www.Lexis.com.)