About Student Housing
Student housing is a subset of the national housing industry that has historically attracted little attention from institutional investors. Prior to the 1960s, almost all student housing was located on campus and was provided and maintained by the college or university. As the baby boomer generation moved onto campuses, schools were unable to keep up with growing housing demand and, over time, most schools provided dorms for freshman and for some sophomores, but upperclassmen were forced to look for privately owned housing. This usually consisted of older single-family homes or, in some cases, off-campus conventional apartments.
These properties were not designed for students, but because of their proximity to campus, they were transitioned to student occupancy. Characterized by fragmented local ownership and management, there was little standardization and virtually no evolution in the housing product that was offered to students. During the 1990s, the children of the baby boomers, known as echo boomers, began to reach college age. This new demographic began a significant change in the student housing industry. Owners and operators began to look at this demographic group with a more programmed approach. This period of time saw the advent of rental apartments that were developed specifically for the needs of students. Floor plans, including the mix of bedrooms and baths, kitchens, and living spaces, were for the first time designed in terms of student demand. Amenities were added for the convenience of the student occupants, helping to provide a competitive edge and to differentiate this product from the traditional stock of older single-family homes.
Today, most universities are faced with significant funding issues. This is likely a larger issue for state-funded schools versus private schools, but in any event, this funding squeeze has led many schools to limit their stock of university-owned housing and to allow and even encourage the private sector to provide much needed growth in the supply of housing, in some cases, universities have turned over their dorms to private companies and in recent years there have been a growing number of public/private partnerships between universities and private developers to create product to meet the university’s specific housing objectives.
While economic conditions have resulted in generally flat enrollment (and demand for student housing) nationally, the sector is relatively resistant to recession. For several years, U.S. student enrollment has been supplemented by growing enrollment from students from Asia, India, the Middle East, and other foreign countries, a trend that is expected to continue. In addition, more students are choosing to remain in school to pursue their advanced degrees before entering the workforce, as well as choosing to seek full time employment in some of the more dynamic campus towns. Longer-term population projections combined with a potentially growing and technology-dependent economy should result in enrollment increases over time.
The following chart illustrates the expected increase in the target demographic of 18- to 22-year-olds over the next 25 years.
Today’s state-of-the-art student housing properties are characterized by:
- Purpose-built floor plans blending an optimal combination of bedrooms, baths, and living spaces
- Amenity packages designed to meet a student’s lifestyle and time requirements, including parking, high-speed wireless Internet access, fitness centers, on-site groceries, laundry, swimming pools, hot tubs, green spaces, movie theaters, etc.
- Security, including doormen, security cameras, and restricted keyed access
- Upscale buildout and lobby finishes
Location plays a critical role in student housing. In general, there are two strategies. One strategy is to pursue opportunities located on the peripheral of the campus area. Typically these properties have lower replacement costs, and lower rents. These residents would typically use a car or bus service to access the campus. The alternative, which we favor, is infill locations close to central campus. These properties offer the convenience of walking to campus, easy access to key locations around town, and typically will have an attractive buildout and structured or below-ground parking. They will command higher rents and maintain higher occupancy because of their close proximity to campus and are more insulated from future competition because of the scarcity of land close to campus. The current market is clearly demonstrating a growing disparity in capitalization rates based on proximity to central campus, significantly favoring infill locations.
Other critical data in analyzing an investment in student housing include student enrollment levels and growth, in-state versus out-of-state enrollment, male versus female enrollment, parents’ disposable income levels, land availability, competing properties, rural versus urban campus location, other residence options available to students, new development processes, the school’s financial condition, and the school’s housing programs and objectives.
Data suggests that overall market conditions continue to improve, particularly at campus proximate locations, further reinforcing our strategy. Student housing remains attractive to investors because it remains a highly fragmented industry with no single owner or group of owners holding a dominant market position. Growing capital flows into the sector, from institutional as well as private investors, should continue to support strong asset values and will likely lead to additional future consolidation in ownership.