This is the first installment of a four-part series that delves into the student housing asset class. In upcoming articles, we will analyze investment and capital trends in this sector and predict what 2024 has in store.
When one hears “student housing,” they may envision the infamous Delta Tau Chi fraternity house from the movie “Animal House.” However, decades after its release, off-campus properties still serve as homes for students. Alongside these traditional options are newer apartment-style dwellings that offer upgraded accommodations to college students.
It’s important to note that while off-campus student housing shares similarities with multifamily properties, there are significant differences between them according to industry experts. As Subtext Executive Vice President Mitchell Korte explains: “Student housing is a specialized segment within multifamily housing designed specifically for higher education pursuits. It diverges significantly from traditional multifamily properties across various dimensions.”
These dimensions include demand fundamentals and demographics as well as lease cycles and structures, unit mixes, concessions,and amenities.
The primary target market for purpose-built student housing is – you guessed it – students themselves. Andrew Layton , chief acquisition officer at Student Quarters (a leading owner/operator/manager of student housing), notes: “My job is to cater to 18-24-year-old kids… What we’re capturing is a demographic quite different from that of multifamily.”
Unlike other types of real estate where employment or population growth play key roles in demand fundamentals; university enrollment serves as an essential factor determining success or struggle within this niche market says Colliers’ Senior Vice President Sean Baird who leads their International Student Housing Group .
Another crucial difference lies in location preferences among tenants; Parker Champion , COO/partner at CRE developer/investor Champion Real Estate Company states: “[With]the closer [a property]is located near campus,the more attractive it becomes.” This sentiment echoes throughout many industry professionals including Brent Little , president/CEO of student housing developer Fountain Residential Partners who explains that the most desirable properties are within a mile of a college or university campus. He adds: “There are some exceptions, like lower-density ‘cottage’ type products or situations where there are barriers to entry next to campus.”
Lastly, parents play an important role in deciding where their children will reside during their studies. Layton notes that parent guarantors on leases (unless students can qualify independently) is standard practice among competitors and ultimately makes them the decision-makers.
Unlike traditional apartments which can be leased at any time throughout the year; student housing rentals align with school calendars meaning leasing occurs once annually with move-ins typically occurring in August and move-outs in late July according to Baird. Champion adds: “If you don’t lease up by August,you miss out on filling vacancies for an entire year.” This means pre-leasing efforts must begin far ahead of actual start dates – sometimes as early as 12 months prior – while annual turnover rates range from 70%-100% (unheard-of for multifamily properties).
The fast turnaround also requires more intense operations than traditional apartments making it crucial for owners/managers to have dedicated teams handling leasing, retention,and turnovers says Champion.
Student housing units differ from conventional apartment layouts because they’re leased per bed instead of per unit explains Little . Additionally, metrics such as costs and occupancies reflect this structure along with all-inclusive amenities such as full-size washers/dryers,furniture/utilities/internet access etcetera.
Within this framework exist various types including studios/one/two/three-bedroom floorplans but also larger options like four/five-bedroom units notes Korte .
While resort-style pools/high-end gyms may serve similar purposes between Class A multifamily concessions; Colliers’ Baird emphasizes other essential features specific to student living including study lounges/communal spaces/high-speed internet connectivity etcetera. Korte adds that amenities enhance the student experience and may include coffee bars/game rooms. Furthermore, “in an effort to foster a sense of community and enrich the overall university experience, student housing communities often organize regular resident programming,” he notes.
Because parents are involved in decision-making processes; Layton stresses security as a top priority for any successful student housing property: “With these properties,you’re certainly selling proximity…[but]you’re also selling to parents [the idea]that their kids will be safe with decent quality of life while living there.”
