Members of ULI’s Student Housing Council discuss how private developers of student housing can create residences that appeal to students, their parents, and their academic institutions; which amenities are most in demand; which technological features are most important; and other trends.
What are the priorities of students and their parents when they are considering student housing?
J.J. Smith: Students are looking for pedestrian-oriented housing that offers new, modern, furnished apartments with amenities like study lounges, fitness centers, fast and reliable internet access, and responsive management. Parents are seeking security, access control, life-safety features, and responsive property management.
J. Wesley Rogers: Proximity to campus is the first priority. Today’s students want to be able to walk to their classrooms, to their nightlife, and, if applicable, to Greek housing. Another high priority—particularly for the parents—is safety. Parents want to know that their child is in a safe and secure environment. Students want to feel like they are getting good value for their dollar, and with many new student housing facilities, they are paying higher rents than they did for on-campus housing, so they have to feel that they are getting enough bang for their buck. High-speed internet access throughout a community is probably the most important amenity. Other important amenities would include fitness rooms, study rooms, and—particularly in southern climates—a swimming pool.
Troy Manson: Students are looking for the off-campus lifestyle, and that can include everything from the amenities to the sense of connectedness to the student body. Students are looking for an extension of the fun part of their college experience, so we host a lot of resident functions at our properties. In terms of amenities, we’re seeing demand shift to more study areas. Parents are obviously looking for safety and, to some degree, one-stop shopping: they don’t like having to worry about their children signing joint leases with a traditional apartment community and then having to set up utilities in their own names and pay multiple bills.
Chuck Meyer: Many student housing developers assume students want a lot of amenities like grand pools and game rooms and movie rooms, but what we have found to be the top priority for the students is study space. They don’t want one study room; they want multiple study rooms, on each floor if it’s a multifloor community. They are, of course, concerned about safety as well, and proximity to campus, but the first priority for the students is to have a sense of community and to have plenty of study space.
How about the academic institutions—what are their priorities?
Manson: Universities are looking to keep their students connected to campus, which is part of why you’re seeing so many new student housing communities being developed close to campus. Statistically speaking, the closer students live to campus, the more likely they are to succeed academically and to stay enrolled. And the closer a property is to campus, the more universities are going to want to be in tune with what’s going on there. At the handful of campuses across the country where we own student housing adjacent to campus or to the football stadium, we generally invite the university’s participation. We designate certain students as ambassadors who serve as eyes and ears for the university. For example, we bought a property near Arizona State University, which at that time had a bit of a party reputation, and then we introduced the ambassador program. That has helped us mitigate issues and foster a better relationship with the university.
Meyer: A number of schools still want to control their own student housing and believe that they can offer the students value. And then there’s another camp, which is growing, of universities looking at cost constraints. State governments aren’t giving academic institutions as much money as they were, if any, and so those institutions have to prioritize what they’re going to spend money on. They are saying, “Housing is not core to what we’re trying to do, so we want to outsource it.” But they still want to maintain a good amount of control. A lot of the academic institutions in this camp need to look at their credit rating and figure out ways to work with private developers to keep housing developments off the school’s balance sheet.
Smith: Institutions are seeking to partner with developers that have an operational track record with other institutions. They are not interested in serving as a guinea pig with a new entrant to the student housing space. Beyond that, institutions want little to no financial obligations or impact to their balance sheet and bond ratings. They’re seeking developers who will provide the best product while requiring the least amount of fiscal commitment from the institution. In regard to the design of the housing, universities are seeking larger common areas and smaller suite spaces in order to create more of a community feel, allowing residents to engage with each other in common spaces, such as study lounges or game rooms. Most institutions have a residence life department that puts on functions and events to create a collegial, communal feel, encouraging residents to spend more time in common spaces.
What are the biggest challenges to providing student housing?
Rogers: The increased cost of construction has been a big challenge over the last two years. Fortunately, cap rates have continued to come down, but we’ve also found lower-cost sources of capital that will enable us to build projects at lower development yields than we would have been able to attain in the past. And because construction costs are up, we’re also shrinking some of our unit sizes, capturing multiple price points, and offering more value units. We’re trying to get the rents [as] low as we possibly can for units in A-plus locations.
Manson: The biggest challenge for student housing developers today is probably the availability of developable sites close to universities. With the scarcity of land comes much higher prices. In many cases, developers have to buy income-producing properties, which obviously cost more than greenfield sites. That drives developers more toward vertical construction and, in many cases, Type 1 construction [the most durable in terms of withstanding fire]. High rises have a much higher cost per square foot, which requires much higher rents. To mitigate that is a big challenge. It comes down to due diligence and market underwriting and understanding that we can’t build the same product in every market across the country and expect to succeed. We spend a lot of time in each market, understanding where the students are currently living, what the elasticity of demand is, and what they will pay. Then we try to develop a product that is attractive to them, but that also allows us to achieve a rent level that will generate the proper return based on the cost of that market.
Meyer: A lot of the development deals happening now cater to the top end of the market. We keep pushing the envelope on the per-bed rents, on the amenities: it’s almost a race to the top to provide nicer amenities to attract students, to fill the beds as quickly as possible. But it makes the developments costly and it necessitates charging high rents. In the industry, we keep asking ourselves: how much of the student population can afford to pay these rents? It’s hard to develop an asset that caters to the middle of the market, because of costs and where cap rates are today. A potential solution is to renovate and improve older assets, but there aren’t a lot of older assets to be renovated, and many of them are farther from campus than is ideal. The industry has to figure it out: it’s an opportunity and a challenge.
Smith: The market has been indicating a strong preference for pedestrian-oriented student housing close to campus, with amenities and conveniences and perhaps some mixed retail on site. However, well-located property costs have risen, municipal permits and approvals have a longer gestation period now, and the cost of construction has soared. This has thinned developers’ profit margins and forced rents higher than in years past. To combat these challenges, a lot of developers are constructing some of their own buildings—becoming a general contractor to take out the extra layer of fees that would be involved with a third party. And these factors have forced the square footage of the units to be smaller than in years past, to save costs.
What kinds of technologies are important to students?
Meyer: Cable television is a thing of the past. By and large, students today are watching everything on a wireless device. They’re doing all of their schoolwork on a computer that’s hooked into the internet wirelessly. A four-bedroom unit might have four or six students living in it, and each of those students has two to four wireless devices. The internet bandwidth has to handle “rush hour” because the students tend to work on the internet all at the same time, late into the middle of the night, as they study and prepare for tests or unwind. Security technology is also important. Some student housing properties have video screens that allow residents to see a guest at the door and control access.
Rogers: Most important is internet and cable infrastructure. We spend $1 [million] to $2 million per year to provide high-speed fiber infrastructure on our projects, with all the necessary equipment, which we own, instead of relying on a third-party provider. We deliver a high-speed connection to every unit, as well as high-speed wireless internet access throughout the community. We also deliver high-quality cable, although we’re seeing more and more students stream Netflix. Other technologies include an electronic locker system. When a package arrives for a student, the mail carrier puts it in one of the lockers, and the system automatically sends a text message to the resident with a one-time access code. That reduces the amount of time that our staff has to spend managing packages, which is important as more and more students order everything online.
Smith: Study lounges need to be well equipped with the latest technology for group presentations and other study software necessary to meet students’ educational needs. Also, the property management team needs to be readily accessible to the resident base, via text or custom apps. Residents do not want to deal with phone calls or emails or even contemplate the extra steps necessary to listen to the dreaded voice mail.
Manson: On the operations side, online leasing is increasing. Property owners have to have a good website and Facebook page. The ability for students and their parents or roommates to review and sign leases online, from different places across the country, has streamlined our leasing process.
What other significant trends have you been noticing?
Rogers: Mixed-use projects are becoming more prevalent than in the past, with retail on the main level and student housing above. That’s largely dictated by the local municipality. Adding retail can be a challenge for developers. We’ve had a few sites where it has been very well received, but not all good student housing sites make good retail sites, and it can hurt the yield for the developer. It can be difficult to lease all the space, and the developer generally has to build a transfer slab over the retail space, which adds significant costs to the project. But there are certain situations where it works well. At one of our projects in Gainesville, Florida, we’re getting in excess of $50 per square foot [$538 per sq m] in rent on our retail space, so in that project, the retail component adds to our yield.
Smith: College students are an environmentally conscious demographic, and while they might not recognize the LEED [the U.S. Green Building Council’s Leadership in Energy and Environmental Design certification program] name, necessarily, or understand what its categories mean, they want to be aware of any environmental impacts they’re having in their housing, and they want to do what they can to better the environment. They appreciate pedestrian-oriented projects, because they are less car-dependent, and they appreciate green building technology, green roofs, water harvesting, and recycling. Those all strike a chord with today’s college students.
Ron Nyren is a freelance architecture and urban planning writer based in the San Francisco Bay area.
