By: Brandon Miller
As the housing market makes a strong comeback, developers and investors are looking to capitalize on the residential sector and various commercial real estate types. While multifamily development is generally dominated by large institutional players, the student housing market remains highly fragmented, where no single company controls more than 100,000 beds. REITs such as Education Realty Trust, American Campus Communities, and Campus Crest Communities are taking advantage of student housing market, but the sheer demand for more beds makes this an incredibly attractive niche to entrepreneurial developers and investors. A quick look at basic supply and demand economics and general college trends demonstrate the opportunities that exist in student housing.
- Enrollment continues to grow. According to the National Center of Education Statistics, college enrollment increased by 37% to 21 million between 2000 and 2010 and is projected to grow another 11% between 2010 and 2020. While not as staggering as in the last decade, this growth will result in another two million students requiring housing options by 2020.
- Substantial supply gap already exists. According to research by Michael Gallis & Associates, over 75% of the 13.5 million students enrolled in four-year undergraduate programs at large public universities live off campus, creating a supply gap of 1.5 to 2 million beds. As enrollment increases, this gap could grow to 2.5 million in the next 10 years.
- Private development is essential. Most states lack funding to allocate towards new housing construction. The REITs mentioned above and the handful of larger private student housing developers can only deliver enough beds to cover a small percentage of the demand, leaving a great opportunity for other developers.
- Existing student housing inventory is old. Much of the existing inventory is becoming obsolete due to age and the lack of current technology and amenities expected by both students and parents.
These factors create great conditions for new development opportunities, though there are risks and nuances that must be considered as well:
- Risk of overbuilding. While the large public institutions are the sexy pick for the REITs and larger investors, the demand at smaller schools or satellite campuses should not be ignored. The State of Texas is a great example. As the state continuous to grow, colleges are accepting more and more students. The difficult admission requirements along with sheer volume of applicants not accepted at the University of Texas and Texas A&M has led to swelling enrollments at other state schools such Texas State University, University of North Texas, UT Arlington, and UT San Antonio.
- Specific college dynamics. Overall, the student housing market appears healthy, but each college is its own submarket. It is important to understand what drives a school. What is the enrollment? Is the application rate growing? What is the percentage of accepted applicants? What is the retention rate? What is the tuition? Some statistics can be deceptive. For example, many colleges have seen growth as a result of offering on-line classes, which may not result in the physical presence of students at the college.
- Location is critical. Your “off-campus” project needs to be as close to campus as possible, preferably within comfortable walking/biking distance or on a dedicated bus route. Cap rates can vary dramatically depending on proximity to campus.
- Student housing is more management intensive because of the unique leasing cycle and more day-to-day maintenance and student support services that are required.
Student Housing is a niche market offering an excellent alternative to traditional multifamily that is both attractive and accessible for entrepreneurial developers and investors. Our firm is currently arranging debt and equity financing for several new student housing developments and acquisitions of existing properties. If you are seeking to learn more about investing in the student housing market or have capital needs for a project, Please contact us to further discuss your financing requirements at 972-267-0600 or visit our website – www.metcapital.com.