Student Housing: Look for Continued Growth

IRVING, TX—In conjunction with the recent RealShare Student Housing conference at the Four Seasons Spa and Resort here, industry experts stressed one point: Student housing continues to be a great sector in which to build, invest and own, as long as you know what you're doing.

"Student housing hasn't had the swings that the other sectors have had as a whole," says Hendricks & Partners' national director of student housing Kevin Larimer. "If you're close to the campus of a major university, your tenant base will always be there."

"The fundamentals are compelling, the schools are growing, enrollment is up and people are staying in school longer," says Brian Dinerstein, president of Sterling University Housing, which operates under the auspices of the Dinerstein Cos. "It's been a good business for us, and resilient through the downturn, for the most part."

The sector has also gained some street cred, thanks to the solid performance of the "big three" publicly traded student housing REITs: American Campus Communities, Educational Realty Trust and Campus Crest Communities. "We're not public ourselves, but we're graded based on what those groups do," Dinerstein comments. "We're fortunate they've done pretty well."

This is not to suggest that student housing is a commercial real estate nirvana, however. Rick Perdue, director of acquisitions with Tonti Properties, says developers have a window of time during which supply can still be absorbed in many regions. But in five years, that dynamic could change, and we could be seeing an oversupply.

Furthermore, dislocation of capital has been a large issue since 2008. Larimer points out that Fannie Mae and Freddie Mac, in particular, continue to be reluctant to lend to sponsors who aren't qualified. Though a great deal of capital is currently coming into the market, he points out, it's going to existing operators and proven investors.

Perdue agrees that debt—and equity, for that matter—are still tight. "There's still a little caution there," he says, "but it's loosening up a little." Over time that could lead to more developers coming into markets and a lot more units coming on line. The problem here, however, is that those developers may, as Perdue puts it, "underappreciate" what's necessary with student housing.

Larimer, in the meantime, predicts that the sector will remain healthy in the near term, given the limited downside exposure, especially when it comes to owning core student housing that is close to campus. "We'll continue to see capital flow into this segment, and I expect transaction volume will be 15% to 20% higher than it was in 2011," he adds.