Campus Crest Milledgevill Location.
Photo by: John Zwolinski.
Some U.S. developers are going back to school.
To build, that is.
At a time when the real estate market is anemic, student housing development is relatively robust. Long considered a laggard in the multifamily sector, student housing is becoming a standout as more developers are taking a harder look at the field.
The reason? Rising rents and steadily increasing enrollment. Occupancy at student housing is nearly 90 percent and rents are expected to increase 2 to 6 percent this year.
“Private sector development of student housing has steadily increased over the past 20 years for a number of reasons,” says Peter Smirniotopoulos, a Falls Church, Virginia, finance and development consultant. “Academia has an aging and inadequate housing stock, and the quality of student housing has been steadily rising among the criteria college applicants consider in making their choices for where to apply and what acceptances to take. Also, as other resources have dwindled or become more constrained, being able to turn to the private sector—and [to] private sector financing—has become increasingly attractive to both public and private institutions.”
American Campus Communities, Inc., of Austin, Texas, for example—one of the largest owners, managers, and developers of student housing properties in the United States—announced in June the start of construction on four projects in Arizona, New Mexico, Texas, and Georgia that contain 3,249 beds with a combined total development cost of approximately $156.6 million. All four projects are expected to be completed by fall 2012.
Volleyball Court at the Campust Crest Statesboro
Location. Photo by: John Zwolinski.
Another student housing developer, Campus Crest Communities of Charlotte, North Carolina, is working on four new wholly owned and two joint venture student housing communities to be delivered for the 2011–2012 academic year—for a total of 844 units with 2,316 beds valued at $87.5 million.
Today’s student population is looking for a student housing experience that replicates the individual’s experience of living at home. “Many high school students have grown up not sharing a bedroom and oftentimes not sharing a bathroom,” says Smirniotopoulos. “Additionally, not only do many grow up enjoying community amenities such as swimming clubs and fitness facilities, but their multimedia experiences at home have become increasingly elaborate.”
In addition, green design and construction are becoming more prevalent in academia in part because college students are much more attuned to environmental concerns, and higher education institutions—unlike typical American corporations and investors—focus on 25- and 50-year time increments and better appreciate the long-term cost savings achievable through good sustainability strategies in design and construction.
Any entrepreneur seeking to enter the student housing sector should undertake his or her first project with a well-qualified and experienced development team. “I would also caution all developers in this sector that the fundamental nature of higher [education] is changing in a number of significant ways, and that to continue to be successful in this sector they need to fully understand and keep up with the business of higher education,” Smirniotopoulos advises.
Campus Crest San Marcos Location.
Photo by: John Zwolinski.
Other words of caution:
- Good property management is on a par with good design and construction. “The most successful private developers of student housing recognize this and have devoted as much time, energy, and research to their property management divisions as they have to their development divisions. Property managers must be hypervigilant in ferreting out problems and rectifying them immediately,” says Smirniotopoulos.
- Early pro formas must demonstrate the financial sustainability of each project. What is needed is “a sound market analysis conducted by a qualified independent market analysis firm, that not only looks at the typical multifamily criteria such as market area and competitive supply but also takes into account that the annual cost of student housing gets factored into the overall annual cost of a student’s secondary education, and cannot price the student out of the school.”
- Potential developers must recognize student housing is its own creature, with its own peculiarities and idiosyncrasies. “Even when [a project is] privately developed and financed, a student housing developer has to recognize that there are at least two ‘clients’ of every project: the institution and the parents of the students who will become the project’s tenants,” he adds.