The Student Housing Niche by Tim Bradley

by 01 Aug 2008
Provides A+ Opportunity in a Tight Credit Market By Tim Bradley University enrollment is currently at an all-time high as the children of the Baby Boomers, (the Echo Boomers) search for their ideal college experience. Student enrollment is expected to jump 11% over the next decade, outpacing the amount of on-campus housing options currently available. As a result, student housing has become increasingly attractive to developers and investors for the short term and long term returns depending upon the transaction. Upscale living The student housing market, unlike other sectors, remains relatively unaffected by today?s tough economy, creating an overflow of students on campus and increase in demand for appropriate living accommodations. To sustain increased enrollment and make up for the lack of funding for on campus housing facilities, many schools are looking to private developers to develop amenity-rich student housing that will meet the needs of the students, parents and the university. Universities know that to recruit and retain the growing student population, they must offer modern housing options that appeal to today?s sophisticated student consumer who demand advanced technology, private baths, and resort-style amenities. The movement toward upscale student residences is a result of several factors, one of which is a premium on today?s students desire for comfort and privacy. Many of today?s students have grown up with their own bedrooms or bathrooms and have parents who do not mind paying the extra cost for their children to live in upscale accommodations. As college enrollment and tuition costs continue to increase, colleges and universities are increasingly turning to private developers to create student housing projects that will accommodate their growing size while serving as a recruitment tool. Several firms, including the Philadelphia-based real estate investment bank BlueStone Real Estate Capital, have capitalized on the growing demand for student housing. Recently, BlueStone secured a $17 million non-recourse, first mortgage loan for The Registry at Western Kentucky University. This is a 230 unit/558 bed student housing complex in Bowling Green, KY. The deal was considered somewhat risky as the property had not been completely leased. However, the private investor moved forward with the deal because of the strong relationship they had formed with the university, the demand for off campus housing at WKU, and the proximity of the building to campus. Currently, the Registry has fulfilled the majority if it?s pre-leasing agreements for 2008-2009 school year. A Growing Niche Market With the current state of the market, investors continue to look for niche investments. Student housing continues to be an excellent opportunity for several reasons. First, many universities have disclosed that they are building or have plans to add additional housing in the future. The majority of existing student housing is outdating or unappealing and universities rarely have the funds to develop the upscale living communities that their students demand. Student housing also provides more guaranteed income for property owners, since often times rent is paid by financially stable parents. The sector creates other income opportunities in complexes that charge by the bed rather than by the unit as students are more willing to share space than the traditional multi-family properties. Full academic year leases are the norm, which means turnover occurs almost every year as students graduate leading to nearly guaranteed money with opportunity to raise rent each year. In addition to the opportunities for off campus development, some firms are working closely with universities for on-campus facilities. Developing on university property can be more complex as university officials require increased control of the design and operation of the development. Multi-family investors have been more willing to look at on campus housing where they have the ability to control operations, including rent, leasing and capital improvements. The competition for both on and off campus housing is limited as the requirements for operating such a facility can be rigorous and challenging. Therefore, developers may seek partnerships with one of several top tier student housing management firms to help run the show. Where the Deals Are Currently, federally sponsored Fannie Mae and Freddie Mac are the main source of capital for student housing along with several balance sheet lenders. Due to lack of available capital, developers and operators are seeking funding through other avenues such as JV partnerships, institutional investors and REITS domestically and abroad. Traditionally, lenders favor cities with larger universities with enrollments typically between 15,000 to 20,000 students or properties that are located in close proximity to campus or university sanctioned transportation. They also look for existing, stabilized properties with high occupancy rates and whose tenant base is at least 80% undergraduate or graduate students. Both large and small universities have the opportunity for moderate growth in enrollment over the next five years. Some smaller schools expect a substantial increase in students and rarely have the funds to build new housing, thus providing several opportunities for lenders and developers. Smart Investment Developers seeking an alternative to traditional apartments have found a viable option in student housing. As university populations continue to rise and the credit market remains tight, there is a prime opportunity for new development where land is available, and where universities seek partnerships with private developers. The best opportunities in the student housing sector can be found at campuses experiencing rapid enrollment growth and at institutions with the most competitive enrollment standards. However, there are niche opportunities to be found at smaller institutions where funding is low and housing demand is high. For investors that are willing to take on the challenge of student housing, rewards can be as high as 25 percent. About Tim Bradley Tim is a senior associate at BlueStone Real Estate Capital, a Philadelphia-based commercial real estate investment banking firm that secures innovative debt, mezzanine, equity and sponsor equity financing for the nation?s top-tier investors, operators, owners and developers. Bradley?s responsibilities include raising debt and equity for the firm?s clients, while simultaneously structuring and negotiating loans for all product types. Mr. Bradley?s primary focus is on retail properties, senior housing facilities and student housing facilities. BlueStone was recently awarded the Mid-Atlantic Real Estate Journal?s ?Financing Deal of the Year? for securing $48,000,000 in construction and financing for the historical B&O Building in Baltimore, MD. This is the second consecutive year that BlueStone has won this award. For more information please visit


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