Student Housing Has a Strong Foundation

AUSTIN – There is little doubt that multifamily is the “it” sector in real estate these days – developers and investors alike are finding a lot to like with this particular product. And experts tell GlobeSt.com that one multifamily sub-sector – student housing – is also attractive to investment and developers, though for different reasons.

“There are more kids turning 18 than ever before,” comments Patton K. Jones, principal with Apartment Realty Advisors’ student housing division in Austin. As a result, while the other sectors struggled through the Great Recession and the sub-prime mortgage fall-out, “student housing held up very well because the sheer number of kids coming to school has increased steadily,” Jones says.

Not only is enrollment at major universities hitting outrageous markets, mid-size universities and schools are starting to see that same increase. “The major schools like University of Texas (in Austin) are capped and can’t handle any more kids,” Jones notes. “So they’re sending kids to feeder schools.” The “feeder schools” in Texas are in a great number of secondary cities, such as San Antonio, Lubbock and Arlington.

While many of these colleges and universities have student housing on campus (and near campus), much of that is not enough or old. “We all know universities are facing budget issues,” says Barrett O. Kirk, senior vice president – development with Houston-based Asset Plus Cos. “Raising capital to renovate existing facilities, much less finding capital for new facilities is difficult.”

As a result, these institutions of higher learning are trying a variety of solutions such as public-private partnerships between developers, and turning to off-campus housing that’s close by to house students. Kirk and Jones agree on one thing – and that’s developers are starting to become more aware of that demand and are starting to take action. “We’re seeing developers build in urban and suburban environments,” Jones remarks. Kirk, whose company builds off-campus multihousing, agrees: “When enrollment is growing and the market’s improving we often see a light switch and two, three, four developers coming in and building in a given market.”

Kirk goes on to say that developing a multihousing complex for students as opposed to conventional multihousing. Designing conventional multihousing requires that more money be put into unit amenities such as hardwood floors and granite countertops. When it comes to student housing, however, “we take the money we’d normally spend on multifamily units and spend it on amenities,” Kirk says. “Larger pools, game rooms, simulators and study lounges.”

The good news for this sector, both experts note, is that there is still enough demand to justify more supply. But both experts also point out that student housing isn’t something that any operator or developer just jumps into. Kirk says student housing is a full-time leasing operation: Almost the minute students move in, renewals are rolled out for the next fall. 

Jones says the recession has done a pretty good job of weeding out the chaff from the student housing wheat, though. “We’re not seeing amateurs building student housing,” he comments. “We’re seeing strong players with pedigrees who have been in the business for awhile.”