Amenity packages set to change
The over-amenitization of properties is one of the biggest trends I’ve witnessed over the last five years in the student housing sector—and it’s one we continue to see today.
In some markets, amenities like lazy river pools, spas and rock-climbing walls are almost standard. Many developers add these high-end amenities more because students think they’re cool and less because of an overwhelming need in the market. Over the next five years, I believe that developers will realize that these luxury amenities are just escalating construction costs and creating student housing that caters only to affluent students.
What our residents really want in a community is the best Internet and information technology features. Students typically have three to five devices connected to the Internet at any given time. They won’t stand for inconsistent Internet service, and every unit must be well-equipped for wireless Internet connections. Property owners can no longer buy a technology service simply because it came in at the lowest price—they have to consider the quality of service. Now, and over the next few years, owners will need to increase engagement with their technology service providers to be sure they are providing residents with high-quality services that meet their needs.
David J. Adelman is president and CEO of Campus Apartments.
Government intervention poses risk
First and foremost, a phenomenal number of student housing firms now take a more professional approach to owning and managing their properties than they did five years ago. And they now demand and have access to meaningful data on the performance of student housing properties and the pipeline of new developments.
Second, the so-called “money people” now recognize that student housing is an attractive asset class that performs well in tough economic times. Five years ago, we were still in a struggling recovery from the Great Recession, but the economic impact to the student housing sector was minimal compared to the overall U.S. real estate market.
Looking forward, I am troubled by the possibility of further federal government intrusion into higher education.
The federal government is considering providing free community college education. While this prospect may seem like a solution to a variety of challenges, supporters may underestimate the cost restrictions and regulations that may come along with federal support.
Similarly, there’s a push to rank colleges on some kind of cost/value system. This proposed system sounds potentially useful, but any ranking would be filled with far too many assumptions and faulty value judgments. Schools should be able to justify the cost of their tuition compared to the likely value of the education they provide in increased earnings without any interference from the federal government.
Jim Arbury is vice president of student housing for the National Multifamily Housing Council.
Investors better value student housing
If we go back several years, the average property buyer was unwilling to pay more relative to income for student housing properties with strong locations in markets that serve tier-one universities compared to tier-two universities. Today, the investment community is very educated on how core properties located within walking distance of large, tier-one universities usually show the strongest net operating income growth over time. This recognition has helped create premium pricing for these properties.
The other big change you have seen in our sector is the substantial increase in interest from investors. Nearly a third of the private capital deployed in 2014 was new to the sector, according to CBRE. In recent months, high-profile, institutional fund investors have made significant student housing acquisitions, signaling the acceptance of student housing as an established investment class of real estate with strong growth fundamentals. As a result, capitalization rates—a measure of investor risk—for student housing are now just 13 basis points higher than average cap rates for multifamily properties overall.
Student housing occupancy rates today are 95.8, according to data firm Axiometrics. This is despite a record level of new supply delivered last year. Enrollment growth remains strong at tier-one universities. These strong fundamentals, coupled with deep investor interest, position student housing to outperform for many years to come.
William Talbot is CIO of American Campus Communities.
Student housing remains cyclical
Five years ago, the off-campus student housing sector presented an incredible opportunity. At Kayne Anderson Real Estate Advisors (KAREA), we saw compelling dynamics such as strong college enrollment growth. At the same time, the sector was highly fragmented, with significant capital constraints. So, from 2009-2013, we established ourselves as a top private buyer of student housing assets in the United States.
But that was then, and this is now. I firmly believe that we have already planted the seeds for the next economic and real estate bubble and that this cycle will end with some pain, as all other cycles have. We are now an opportunistic seller. We will continue to take advantage of increased capital availability through strategic dispositions to institutional investors, sponsor groups and real estate investment trusts. However, because the next downturn will materially constrain capital and liquidity, it will create significant opportunity for us and a few others who are strategically positioned with long-term capital sources and who are able to execute nimbly, so we also will continue to selectively invest in the space.
Al Rabil is CEO and managing partner at Kayne Anderson Real Estate Advisors.