Student Housing Boom: Increasing Higher-Ed Enrollment Points to Opportunity in Rentals

by | Apr 21, 2016 | Article, Market & Trends

Student enrollment in U.S. universities and colleges has been on an upward trend for the past decade, and it is expected to continue throughout 2016 and beyond. As President Obama noted in his State of the Union address in January, “By 2020, America will once again have the highest proportion of college graduates in the world.”

The National Center for Education projects substantial growth in postsecondary enrollment through the year 2021, thus increasing the demand for student housing.

Our company, Stonemont Financial Group, a national student housing real estate investment firm, projects as much as 3 to 6 percent rental rate growth in some markets. Our evaluations still show there is a healthy dynamic between supply and demand, and it should continue to support strong rent growth and rising occupancy rates, making now the ideal time to invest.

Although the Federal Reserve increased interest rates in 2015, lending costs still remain at historic lows. Interest rates are, in fact, intended to rise, but the increase is expected to be gradual. Delaying an investment decision on student housing is not encouraged, as the lending environment is not expected to improve in the near or intermediate term.

Investing in a Partner

If an investor lacks prior experience, breaking into the student housing investment market can be tricky without the right partner. Plunging into student housing investments should be done alongside a trusted professional who has the experience to help map the rapidly changing territory.

Investors should seek out partners who have developed and purchased student housing in a market with similar profiles. Some characteristics to consider are the maturity of the markets, the school sizes, the competitive landscapes and the types of construction. Suitable partners will be knowledgeable on the future developments in the potential market. Insight on the likelihood of new entrants into the market, other student housing project approvals, the school’s addition of on-campus housing and so on should be readily available.

Well-versed partners should understand the dynamics of each market and have the ability to find the hidden gems. For example, some flagship universities provide name recognition that can be beneficial. However, secondary and tertiary markets with strong enrollment and development opportunities due to a limited amount of purpose-built student housing can also show great promise to investors.

When searching for the right partner, investors should look for someone who is not only knowledgeable on the different student housing markets, but the business side as well. Investors shouldn’t pay for their partner’s on-the-job training.

Choosing the Right Market

Choosing the right market can make or break real estate investment opportunities. When approaching overbuilt markets, investors should take caution. High vacancy rates and a recent influx of new developments are common characteristics of these markets. This poses the threat of a new student housing development becoming absorbed among the others. However, mature markets with the right location, a favorable supply-demand outlook and a product that meets the market can still provide investment opportunity.

Student housing demand is at an all-time high, due to colleges’ and universities’ lack of adequate accommodations and students’ shifting tastes in living preferences. The trend toward more upscale living for modern college students has created a special niche in real estate investments.

Knowing what features are superfluous or an absolute must is not always easy but can give great insight to investors. A student housing community in the right location is a vital component to its success. Some of the most desirable locations have a proximity to campus and other destinations such as entertainment or retail districts. Amenities should also be kept in mind. Having superior or specifically tailored features can compete with what is already available in the market.

Now more than ever, students and parents are expecting amenities such as socializing spaces, TV lounges and speedy Wi-Fi. However, the investment doesn’t have to follow what is already present in the market; sometimes product differentiation can set the development apart from the competition. For example, for a more outdoorsy student body, plenty of safe bike racks may be desirable as opposed to convenient access to retail areas.

The key is to have a finger on the pulse of the student community and assess what needs are already being met and which ones have yet to be catered to.

Top 5 Amenities Attracting Students

  1. Location near both classrooms and entertainment districts
  2. Reliable high-speed Wi-Fi
  3. Clubhouse with recreation area, fitness equipment, study rooms or computer labs
  4. Large resort-style swimming pool
  5. Security features (keyless entry, controlled access, gated community, etc.)
Categories | Article | Market & Trends
  • Brice Willis

    Brice Willis is the vice president, capital markets of Stonemont Financial, a national real estate investment firm specializing in providing capital for single-tenant build-to-suit developments and sale-leasebacks, as well as student housing investments. Brice has more than 9 years of experience in real estate investment banking and providing developers with a full platform of capital raising products and build-to-suit financing.

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