Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/64804
STUDENT HOUSING conventional multifamily, due to staff requirements, marketing initiatives, and resident functions. Financial Aid Construction loans are available for student housing right now, unlike other real estate classes. T e Preiss Co. has recently done construction loans with PNC Bank and Wells Fargo. But smaller regional players are starting to get into the game as well. Mezzanine fi nancing has become popular with developers because a large amount of equity is needed upfront to do a deal. Typically, the leverage is anywhere from 65 percent to 75 percent. Interest rates are usually based on the London interbank off ered rate, or Libor, creating very attractive low interest debt. T e mezzanine fi nancing can leverage it up to about 95 percent with a higher cost of capital somewhere around the mid-teens. As soon as a project is built and stabilized — nor- mally within two years to three years — the biggest permanent lenders are Fannie Mae and Freddie Mac, which off er attractive leverage up to 75 percent with a debt coverage ratio around 1.3. Both Fannie and Freddie require an enrollment of at least 8,000 students before funding a project. Equity has increased from a few niche players 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% Thousands $100 $150 $200 $250 $300 $350 $50 $- Billions $0.1 $0.2 $0.3 $0.4 $0.5 $0.6 $0.7 $0.8 $0.9 $- '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 Source: Real Capital Analytics to the largest blue-chip providers such as Car- lyle Group, Heitman, and ING Clarion. Life companies have also started to compete, but their share is relatively small. Looking Ahead Since the fi rst purpose-built student apartments surfaced in the late 1990s, fi nishes and amenities have continued to improve. T e construction has evolved from basic garden-style product to full- blown clubhouses with gyms, tanning beds, and game rooms, and, of course, ultra high-speed Internet. Finishes now include granite STUDENT HOUSING VOLUME ($ millions) 2012 1,000 1,500 2,000 2,500 500 0 J FM A M J Source: Real Capital Analytics 24 May | June | 2012 J A SO N D John Preiss is executive vice president of The Preiss Co. in Raleigh, N.C. Founded in 1987, the Preiss Co. is now the eighth-largest student-housing company, with projects in eight states. Visit www.tpco.com for more information. Commercial Investment Real Estate 2011 2010 2009 countertops, nine-foot ceilings, and wood laminate fl oors. T e new product is typically furnished, rented out by the bed, and all utilities are bundled and included. Parental cosigners accompany all leases. Preleasing generally starts in October, when students start planning for the following school year, and runs until move-in. T e Preiss Co. currently has developments totaling $65 million under construction in Raleigh, N.C., for North Carolina State Uni- versity, Statesboro, Ga., for Georgia Southern University, and Clem- son, S.C., for Clemson University. As an investment vehicle, student housing is still in its infancy, with 80 percent of the product still controlled by local mom-and-pop opera- tors. However, it now has the attention of Wall Street and the capital markets, indicating that growth will continue. Right now, 95 percent of student-housing transactions are handled by a small number of brokers who specialize in the sector, and listings can be diffi cult to secure. ARA, CBRE, and Marcus & Millichap have been the main con- tenders over the last few years. But opportunities exist for brokers who can locate raw land or a potential redevelopment property near a univer- sity. If you fi nd it, they will build. '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 $ Volume Average capitalization rate '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 Average price per unit