The student housing sector, once considered the stepchild of the multifamily industry by some investors, is generating a lot of positive buzz. Experts say it’s becoming the darling of commercial real estate, showing up on investors’ radar screens as a sound investment.
Previously, when investors considered student housing, they may have pictured run-down buildings, overcrowded dorms and shared bathrooms. However, today’s student housing is a far cry from that image. Most properties being developed—on- and off-campus—are more like resorts, boasting private bedrooms and bathrooms, game rooms, swimming pools, theaters, flat-screen TVs and gyms. These high-end communities, particularly those within short distances of college campuses in prime markets, are a hot commodity. As a result, prices are going up and cap rates are coming down.
“If people are looking for a good story, something that they can go back to their investors and say, ‘This is why this makes sense,’ student housing is it,” says James Tramuto, executive vice president of Jones Lang LaSalle’s Houston office. “It provides for a good yield and a good story.”
The primary reason behind the piqued interest is that the sector is proving itself to be recession resilient and is performing very well during the economic slump compared to other investment sectors. “Student housing clearly weathered the storm probably better than any other asset class,” Tramuto notes. “Not only did we see occupancy growth, but net operating income also grew despite the overall recession. People were still filling their assets and growing their rents.”
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