There was wheeling and dealing and much more during the 2015 NMHC Student Housing Conference & Exposition, as 700 of student housing's leading owners and managers; developers; lenders and brokers; and service providers gathered at the Arizona Biltmore in Phoenix for the three-day event. The event's Student Housing Emerging Leaders program, headed by Collier Companies CEO Andy Hogshead, also provided an opportunity for up-and-coming student housing stars to further their professional development with valuable industry insight and connections.
As a whole, the student housing industry seems to have sidestepped a number of snares that naysayers of years past had predicted would hobble the sector's rapid growth. Rising student debt, the growth of distance learning and online degree programs, higher levels of new supply, capital biases and persistent misperceptions about the sector at large-these threats, while still very real, have hardly taken a bite out of the sector's continued expansion.
In fact, according to data provider Axiometrics, the 2015-2016 leasing season has been one of the best on record, as leasing velocity has kept pace with last year at 95.7 percent and annual effective rent growth has held steady at 2 percent nationally.
"What we are all doing is modernizing an industry that was ignored for decades and decades," he said, pointing to $3 billion in student housing transactions, continued student housing cap rate compression and a narrowing of the cap rate spread between student housing and traditional multifamily as measures of increasing sector value.
This theme of industry modernization was touch upon again during the conference's power panel discussion that included David Adelman of Campus Apartments; Robert Bronstein of The Scion Group; Randy Churchey of EdR; Brian Dinerstein of Sterling University Housing; Donna Preiss of The Preiss Company; Al Rabil of Kayne Anderson Real Estate Advisors; and Bayless, who also leads the NMHC Student Housing Council. Executives pointed to things like bed-bath parity, online rent payments and pre-leasing as specific advancements.
"It's so cool to think we created a new asset class," said Preiss. Preiss also serves as vice chair of the NMHC Student Housing Council.
Bayless also took a moment to recognize the many contributions that NMHC's Jim Arbury, vice president of student housing, has made to that end. Arbury is set to retire in 2015 after 22 years with NMHC.
Student housing's solid fundamentals have been a magnet for capital cruising for yield in a recovery market that many economists agree can't reach escape velocity. With both debt and equity widely available, competition is stiff for deals, particularly as new entrants make their ways into the space.
As a result, student housing executives are working both harder and smarter to identify opportunities rife with value waiting to be unlocked.
Student housing executives noted that they were seeing investors move to deploy funds more efficiently, which was leading them to target development deals over acquisitions. Similarly, those still looking for acquisitions were in search of portfolio versus single-asset deals.
One of the reasons portfolio deals were becoming more desirable was the fact that the definition of core assets has narrowed to really mean infill, pedestrian to campus. Consequently, many student housing owners have targeted those assets and now have portfolios that are more homogenous in terms of asset quality, making it easier to trade in bulk than before when portfolios were more a mixed bag.
"I think the next year or two, you'll see more and bigger portfolios than ever for a variety of reason," said Bronstein, president of The Scion Group. "There's more capital looking to get into the sector and it's more efficient because you can buy in bigger chunks. The absorptions are better and ... the pricing is more favorable on portfolios. We tend not to even bother with single assets because they tend to get bid up. More value in larger transactions-definitely for the buyer [but] the seller, too; they have a specific reason for why they want to move a bunch of portfolios."
Executives also noted that the preference for so-called "fall-out-of-bed" locations was driving up land prices. But land isn't the only factor contributing to higher development costs; labor also is an issue.
"The good and bad is that there is a lot of capital," said Dinerstein, president of Sterling University Housing. "The concern is that too much money can create some challenges. Construction continues to be a challenge. It's a real problem. Everything takes too long-there are issues with labor, materials, costs. But it's the market working; it's a governor."
Given today's market dynamics, NMHC added a new session called Student Housing DealTank to the conference program this year. The session offered four dealmakers an opportunity to fast pitch a panel of top student housing executives that included Justin Gronlie of Harrison Street Real Estate Capital; Peter Stelian of Blue Vista Capital Management; William Talbot of American Campus Communities; Tom Trubiana of EdR; and Bill Lewittes of Kayne Anderson Real Estate Advisors.
Regardless of the structural challenges to finding new opportunities and making them pencil, demand for purpose-built student housing remains strong. Demographics are clearly in this sector's favor today-and will continue to be well into the future as the American higher education system continues to attract international students and Generation Z comes of age.
The new product coming out of the ground today is reflective of students' desire for convenience and quality. Developers reported that they continue to up the ante with respect to on-site amenities, with tricked out rooftops being the amenity du jour.
However, affordability concerns are beginning to surface as these luxury communities come with higher rents. Add to that issue the fact that college costs are rising faster than inflation and incomes. Similarly, student debt is growing at a faster pace than other kinds of consumer debt, although fortunately it's rising more slowly at public four-year institutions.
But some executives said that, while they were keeping close tabs on the big picture, they felt that the industry was still able to serve more price-sensitive students. Following a delivery of a new community in a market, a trickle-down effect of sorts was making nearly-new and other existing product the more affordable product in a given market. In addition, more affordable options often were available further out from campus.
NMHC wishes to thank all sponsors, exhibitors, speakers and attendees for making the 13th annual NMHC Student Housing Conference & Exposition another success. Conference presentations are available here, and we remind attendees that the 2015 Off-Campus Student Housing Income and Expense Benchmarking Survey is now also available. Please contact Brian Veith at firstname.lastname@example.org for more information.
We look forward to seeing many of you next month in San Diego for the 2015 NMHC OPTECH Conference & Exposition and again in January at the Hilton Orlando Bonnet Creek/Waldorf Astoria for the Apartment Strategies Outlook and Annual Meeting.