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Sule Aygoren Carranza is managing editor of Real Estate Forum and editor of Multi Housing forum, from which this article is excerpted.

Atlanta—Student housing has experienced more resilience than traditional multifamily assets. A recent report from the National Multi Housing Council in Washington, DC found rents in many properties in 64 college towns grew between 2004 and 2006, despite weak fundamentals for conventional apartment product.

The overall median growth rate during that time came in at 7%, surpassing the 6.5% increase in rents measured by the Consumer Price Index for the 2004-2006 period. Residences with three or more bedrooms, however, generally had higher year-over-year median growth rates of 9% to 13%. Properties around the University of Wisconsin in Madison, the University of California in Irvine and Georgia Southern University had the highest growth in rents, reports NMHC. In fact, schools in California were at the top of the list when it came to high-rent growth markets. Still, some areas across the US experienced a decline, including Clemson University in Clemson, SC and Virginia Tech of Blacksburg, VA.

Although student-housing operators must provide nine-month leases, only a few offered nine-month leases exclusively, the organization reports. One-third of the communities offered both nine- and 12-month leases, while the rest offered 12-month leases, which are standard for conventional units.Given those fundamentals, the future looks bright for two companies that have joined forces to invest in the sector. Atlanta based Place Properties LP and Blue Vista Capital Management LLC of Chicago have already closed on $205 million worth of equity commitments and plan to obtain another $45 million. In all, the fund will buy or develop approximately $800 million in student housing projects across the US.

Though it’s a core focus for Place Properties, the partnership likes the story the student housing segment has to tell. “The macro demographics of the niche are compelling,” says Robert Clark, chief financial officer of Place Properties, “The student population in universities around the country has expanded, but funds to provide housing have shrunk. At the same time, a significant portion of the student housing stock is aging. All of this results in a great imbalance of supply and demand. We just love the sector.”He adds that the industry, which some peg around $160 billion, is fragmented, which “lends itself to a wonderful investment opportunity.”

Blue Vista and student housing firm Place Properties, which have co-invested in individual assets previously, placed equity into the fund with backing from two public pension funds. The balance of the capital will likely come from other institutional players. The fund, believed to be the largest student housing-focused commingled vehicle, is expected to deliver returns of 9% to 10%, unleveraged, and will last seven years, including a three-year investment period and four-year divestment. Blue Vista will serve as fund manager, while Place Properties will develop and run the properties.

While they may sound similar, there are differences among the off-campus student housing the fund is targeting and conventional apartments, says Clark. It’s not difficult to obtain financing, since the segment has become an accepted asset class. But when it comes to the design, student housing tends to have different configurations.

“Our typical product has a one-bedroom to one-bathroom ratio, so a four-bedroom unit would have four baths,” he says. “A conventional multifamily unit would never have that configuration. The student product, generally speaking, has built-in computer labs and other student-oriented amenities like pools, movie theaters, beach volleyball, basketball courts and exercise facilities.

“There are also major differences in operations,” Clark continues. “Every resident is on an individual lease. As opposed to leasing by the unit, the tenants lease by the bed, which allows for more opportunities to increase rents. And all the leases are supported by parental guarantees. In the student product, the entire house moves out during a one-week to two-week period and moves in at the same time as well. Additionally, there’s a significantly higher resident touch in student product than in conventional. The typical conventional resident is a professional who has little contact with the front office. With the students, our property managers or staff become surrogate parents. Many times, this is the first time these kids are away from home.”

The JV plans to buy existing student housing and development opportunities in areas close to universities of at least 5,000 students in high-barrier-to-entry markets. However, Clark says the top markets do not necessarily include major metro markets. “Everyone has found the biggest schools. I think we will be a little more selective and find opportunities that are a little more difficult to find,” he continues.

The fund is already working on its first project, Pembroke Place. It caters to the University of North Carolina at Pembroke. At 84 units and 336 beds, the facility is smaller than the firms’ typical 500-bed projects. It will be ready for occupancy in July 2007, in time for the 2007-208 school year.

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