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/649656
25 March | April | 2016 CCIM.com STURDY INVESTMENT TREND While every university campus and each student population has specifi c nuances, nationwide, luxury student housing in rural and urban settings has become a top investment for the institutional asset class, according to Jaclyn Fitts, national director of student housing at CBRE in Dallas. "We see universities and developers buying older homes close to campus, tearing them down, and building new pedestrian-oriented, amenity-rich student housing," Fitts says. Real estate investment trusts and other large investors are adamant about investing only in student housing close to campuses in the last few years, according to Fitts. There's 100 basis point difference in capitalization rates between student housing that's farther from campus and walkable student housing. Overall, universities in the U.S. are growing because of the large millennial generation, more students attending college, and the rise in international students. "The beauty of international students is that they like furnished apartments and have been the primary drivers for amenity-driven student housing," she says. The investment appetite for student housing grew from $3.6 billion in 2014 to $5 billion 2015. The average cost per unit was $135,800 in 2014 versus $158,300 in 2015. The jump in student housing investment compares to a smaller increase of $34.8 billion in 2014 to $49.1 billion in the highly touted multifamily marketplace, according to Byron Moger, executive director of multifamily business development and client services for Cushman & Wakefi eld in Tampa, Fla. "Even though student housing is only about 10 percent of multifamily marketplace, it has become much more powerful in the last fi ve years," Moger says. "The price and amenities for off-campus student housing have risen signifi cantly." Overall, it's a great market for investors, he says. For the variations from one university to the next, commercial real estate professionals have to consider the number of students, if that number is increasing year over year, how many students need off- campus housing, and what off-campus student housing is available. "Especially in urban centers, many students still look for housing in the general rental market," Moger says. "The solution is not to offer the same amenities and to focus on including high-speed Internet and many opportunities for social interactions among the students. In most markets, there's plenty of demand." Partners With Deep Pockets Will Kreuzer, CCIM, successfully com- pleted retail developments for students at University of Illinois, Illinois State Uni- versity, and Indiana University. When his small f rm dabbled in mixed-use retail and student housing at Indiana University in 2005, he realized that his company needed a development partner with deeper pockets and student housing management experi- ence to be successful in this arena. "Now a partner and I identify where we can build mixed-use retail and student housing projects and then we bring in CA Ventures, which manages real estate proj- ects nationwide and has invested $1 billion in student housing," says Kreuzer, a princi- pal of Tartan Realty Group in Chicago. "T e growth and stature of the university corre- lates to its ability to demand higher year- over-year rent growth." He sees opportunities for the mixed-use retail and student housing as being especially strong on urban campuses, which are not as af ected by ebbs and f ows of student depar- tures for breaks and vacations. "Student housing is a niche that our f rm in partnership with CA Ventures really tar- gets to kids coming from higher household incomes who want amenities and security," Kreuzer says. "T e opportunity is there, and we have f gured it out on a few campuses. For the Midwest universities where we have combined student housing with retail, the keys are bed to bathroom parity, developing a safe and secure environment, great WiFi, and study rooms on each f oor." Unusual Challenges In Huntsville, Texas, Sam Houston State University has seen a steady 3 percent growth in enrollment due to more aca- demic programs that attract larger numbers of freshman students. While SHSU has a $70 million 800-bed student housing proj- ect underway, as well as private develop- ment of similar student housing, the college population is expanding faster than new housing development. Also, the land avail- ability close to campus is limited, according to Jon Montoya, CCIM, associate broker at MariRealty.com in Huntsville. "Still there's a great opportunity for out- side investors to buy land and develop stu- dent housing," says Montoya, who originally moved to Huntsville to retire and lef retire- ment to work with many people involved with SHSU in brokerage and development. While still a niche of multifamily hous- ing, of -campus student housing has come into its own as a top investment choice for institutional investors, REITs, and private equity funds. As long as U.S. and Canadian universities continue to draw more students, especially those from international coun- tries, this sector should thrive and provide multiple opportunities for CCIMs to close transactions, build developments, and work with investors or invest themselves. Sara S. Patterson is senior editor at Commercial Investment Real Estate. Hero Images/Getty Images