Student Housing’s Growth Spurt

With enrollment increasing and landlords boosting rents, returns of REITs that own student housing are beginning to compare with those that focus on more conventional rental apartments.

The District, a 280-unit, 924-bed purpose-built student housing property located in Morgantown, W.Va., offers students a more than 4,500-square-foot clubhouse with a fitness center, pool, café and nail/massage facilities. (Photo: Kelly Turso)

With enrollment increasing and landlords boosting rents, returns of REITs that own student housing are beginning to compare with those that focus on more conventional rental apartments. New development and property sales are both on the rise.

In fact, student housing outperformed all asset classes during the credit crisis, remaining recession resistant. Enrollment at universities was most likely helped by students feeling uncertain about the future and preferring to stay in school during the Great Recession. The result was 97 student housing transactions in 2011, up from 71 in 2010 and 32 in 2009, according to a research report by Colliers International’s National Student Housing Group. Colliers handled 18 student housing transactions in 2012.

The greatest growth opportunity for developers now seems to be non-flagship schools, where a more pronounced enrollment boost is evident. These schools, the non-state-affiliated entities that are also known as tier II and tier III colleges, accounted for a 12 percent increase in enrollment overall, compared to 9 percent at flagship colleges.
“People are paying more attention to what state budget cuts are going to do and how they’re going to affect those flagship universities and their ability to grow,” said Dorothy Jackman, managing director of Colliers International’s student housing team. “The tier II and III schools are looking to grow and diversify their campuses. Because that typically results in a better economic condition for the city in which they’re located, they’re usually the largest employer.”

Even those investors and developers that feel comfortable in the tier I zone are more and more apt to venture out to tier II and III schools for more guarantee of return. This phenomenon has a lot to do with the recent economic downturn. Students are becoming more practical in choosing major, opting for technical, specialized degrees mostly found in tier II schools, rather than the general degrees or those in liberal arts subjects more typical of flagship universities.

“It’s a cost adjustment,” Jackman added. “There is so much student debt out there and a certain amount of uncertainty surrounding those available funds and job growth in the country. Kids are looking to get a more economically adjusted education in a field that is growing, and they’re not taking any chances.”

The Cottages of Columbia

There may also be a trend in students veering toward specialized degrees at technical schools, said Andrew Stark, CEO of Campus Evolution Villages, although it is not yet significant enough to affect his company’s plans.
As an asset class, student housing remains a fairly new phenomen, having only begun to take shape in the mid-1990s. That’s when universities started outsourcing to private developers, realizing they could handle housing more efficiently by running it as a multi-family apartment off campus, geared toward student life.

While investors, developers and service providers have seized on it as a growth opportunity, the number that have made it a focus remains small. To date, there are less than 40 companies specializing in student housing. The top three players include American Campus Communities, the first publicly traded student housing REIT; Education Realty Trust; and Campus Crest Communities.

“If you look at the top 10 owners (of student housing) in the country, they control less than 7 percent of the beds, so it remains a highly fragmented sector with a couple of industry leaders but nothing that has been as strong and formulized as in other areas of real estate,” added Stark, whose Campus Evolution Villages is a newly created subsidiary of Lauderhill Partners L.L.C. that started acquiring properties in the summer of 2012. So far, it has purchased a total of 7,600 beds in states including West Virginia, Missouri, Kentucky and Louisiana. “We see an opportunity to build a trended campus brand focused around student housing in an area that is still just learning what it wants to be.”

For more on student housing amenities, visit: http://www.cpexecutive.com/in-print/student-housing-today/