Student housing’s robust demand, underlying demographics and strong performance has attracted a variety of new players to the business.
A low yield market has new investors looking to place capital in the space. The industry has not only delivered favorable returns but also outperformed other asset classes in economic downturns, making the sector particularly attractive. Executives report an increase in new institutional players as well as a lot of foreign capital becoming more active in the sector.
With much of these investment targeting new development deals, new merchant developers are also emerging. Large public home builders such as Lennar and Toll Brothers have developed student housing and military housing contractors like Corvis and LendLease are becoming more involved with the development and construction of on-campus housing.
However, the industry is also welcoming a new crop of players that want to be involved in the longer-term ownership and management of student housing communities.
“We saw an industry with a few dominant players and the rest was really fragmented,” said Jay Williams, president and COO of Haven Campus Communities and a participant in a panel discussion on student housing start-ups at the 2015 NMHC Student Housing Conference & Exposition. “So, we thought we could leverage our experience and team connection to identify opportunities. It was really a matter of seeing a great opportunity and trying to take advantage of it.”
But student housing isn’t as easy as it looks and there have been some surprises along the way. Kevin White, director of acquisitions for Virtus Real Estate Capital, said, “I’ve been surprised by how quickly capital has come into the space. Overall it’s a good thing for the industry, but it’s made finding deals harder and we’ve had to dial back some expectations.”
And as the market conditions have changed and the sector evolved, White said he has had to shift his company’s strategies to gain traction. “We were originally focused on value-add acquisition at severe discounts to replacement cost,” he explained. “However, over the past 24 months, the deals have just gotten too expensive. Seventy-five percent of our business is now development.”
Andrew Stark, CEO of Campus Evolution Village, agreed. “We started with a value add strategy and have executed on that,” he said. “But we’ve bought one asset in the last 18 months. So, we’re now considering developing even though that wasn’t the original plan.”