The steep increase in beds in the pipeline-the market currently has as many as 50,000-has resulted in a lot of speculation about oversupply and impending distress in the student housing market from the media to Wall Street investors. While much of the ramp-up reflects the industry recovering following a slow period of production, concerns are building in select markets.
“It [oversupply] is preventable, but it does exist,” acknowledged Campus Apartments President and CEO David J. Adelman during the conference kickoff panel.
During an investment outlook panel, Peter Stelian, managing principal with Blue Vista Capital Management, said, “We’re definitely concerned about Fayetteville, Arkansas. We’ve definitely seen the complete absence of underwriting discipline on both the debt and equity side. San Antonio and College Station [in Texas] also-there’s just a lot of new supply coming in, and it’s really challenging.”
Bob Clark, president of Peak Campus Management, LLC, added, “From our vantage point, Charlotte is going to struggle. University of Arkansas in Fayetteville, and, I think, Minneapolis is taking on a whole bunch of new supply again this year. On our watch list is Oxford, Mississippi. And then University of Southern California, where there is a big project that added a little under 2,000 beds in 2012-2013 and will do the same for the year ahead.”
Other student housing executives pointed to the areas around Clemson University, Florida State University, Georgia Southern University and the University of North Carolina at Greensboro as having potential oversupply issues.
However, for ACC’s Bill Bayless, the headlines are masking an underlying shift. “What’s happening today is modernization of product,” he said during a CEO panel with Campus Apartments’ David J. Adelman, EdR’s Randy Churchey, Campus Crest Communities’ Ted Rollins and The Collier Companies’ Nathan S. Collier. “The product that is being pushed out of the marketplace is the product that should be pushed out. Where we tend to see oversupply is ... where you have too many people going for that upper echelon of pricing. You tend to see oversupply at high price points, but, over time, that’s to replace older product that should be taken out of the equation.”
Collier, principal and chairman of The Collier Companies, said, “It’s a lot easier to overbuild in a smaller market than a first-tier university.”
Despite pockets of potential oversupply, most executives felt confident that underlying demand could support the higher level of production. During another panel discussion, one executive pointed to the fact that most college campuses typically house just 30 percent of their students, leaving the remaining 70 percent looking for quality housing. Furthermore, some executives expressed more concern over the rising number of developments experiencing opening delays, leaving companies scrambling to meet their commitments to house students.
Donna Preiss, founder and CEO of The Preiss Company, said, “There’s a lot of conversation on all the new development and whether it’s overbuilt. [But] 25 to 30 percent of the new deliveries didn’t deliver on time. And that’s a big uh-oh. It all comes down to execution.”