Evan Denner on Student Housing, Capital & Equity Raising

Campus Evolution L.L.C. founder & CEO Evan Denner took time out of his busy schedule conquering the world of Denner_Twitter_Featurecommercial real estate to discuss the student housing sector as it relates to real estate and its standing in a recovering economy. Via the Twitter format of 140 characters or less per tweet, he chatted with CPE editors, shedding light on his decision to move into the student housing space, student and investor demand, and his plans to take the company public.

What follows is a transcript of the exchange.

CPE: Evan, what was your motivation to enter the student housing business? Did you consider any other sectors?

Denner: Our investment thesis is always to find sectors that are either out of favor or fragmented, where we believe we can make a difference. We considered skilled-nursing facilities and medical offices, but decided to focus on student housing. We love the demographic and believe we can be a change agent in the space.

CPE: It has been a little over a year since you raised your first round of equity. What have you purchased thus far?

Denner: Our first acquisition was a corporate acquisition of an established student housing management company. It was always our intent to self manage, as well as third-party manage for other owners. We closed on five assets at the end of 2012 and another asset last month. Over the next few weeks, we are closing on five more assets, and two more in November. At that time, we will own 13 assets and manage an additional six, with a total of over 7,100 beds.

CPE: How do you find capital raising in this market? How much equity have you raised, and how do the debt markets look at student housing?

Denner: We have raised over $50 million thus far. We were fortunate to find two great partners. We continue to raise more equity, but it is certainly a humbling experience. As a former lender with a big balance sheet, let me apologize to all the borrowers I “inadvertently” tortured. I now know what it is like. I’m sorry. The debt market is robust. We have a lot of friends in the space, and they have been great to us. We are always looking for additional sources of capital and interesting ways to fund our business.

CPE: The sector has gotten a lot of press recently, both about players coming into the market and possible overbuilding. Any thoughts on this?

Denner: Markets often move in a “herd” mentality, and student housing is/was no different. While there has been a lot of institutional chatter about getting into the space and some have, we think this is more of a wealth management sector – that is, slow, steady returns. A lot of equity will never make it in because the 25 percent IRRs are generally not there. It is also very much an operating business, and you’d better be willing to roll up your sleeves or hire a company that does and can truly make a difference.

CPE: What types of investors does this type of real estate investment appeal to?

Denner: Those investors that want to sleep at night and are comforted by the fact that there is and will continue to be built-in demand. We believe that this investment is well suited for family office and retail investors that simply want a steady return without taking undo risk in a sector that is easy to understand and is less sensitive to overall economic stress and other world events.

CPE: You took a company public in 2007. Any plans to do the same thing here?

Denner: That was a great experience and a lot of fun. We are building our company now with the same best-in-class practices that a public company has to have. If the market is such and it is the best execution for our then partners and us, we will certainly consider it.

CPE: Demand for college enrollment has decreased due to the recession, and it just began increasing, according to a Nielsen study. How has that impacted demand for new student housing?

Denner: The college demographic is 20 million-plus today and growing. It has grown at a record pace over the last 10 years, and while the rate of growth may slow, the fact is, there continues to be growth. In addition, despite what the world has to say about our kindergarten-through-high school education system, there is tremendous demand from foreign students to access our higher education, which of course also fuels growth.

CPE: Thanks so much for your participation in our live chat, Evan.

Denner: Thank you for the opportunity.