“Exploring the Student Housing Sector: An Analysis of Debt and Equity”
As we delve into the world of student housing, it is important to consider its position in the current market. In 2023, there was much discussion surrounding a lack of capital for commercial real estate (CRE) projects. This led to headlines and expert commentary on lender pullback, stricter underwriting requirements, and rising interest rates for certain asset types.
Interestingly enough, when searching for information on “student housing” financing online during this time period, there were not many results available. However, one notable article from September 2023 in The Crittenden Report highlighted that student housing was still a favored asset class with ample equity and debt available from institutional sources such as life companies. It should be noted that this liquidity was only accessible to experienced builders and operators with properties located near campuses offering desirable amenities.
In agreement with The Crittenden Report’s findings regarding student housing financing options at the time were industry experts who spoke with Connect CRE about their observations. Andrew Layton , Chief Acquisition Officer at Student Quarters , noted that while capital may not have been abundant in 2023 overall due to economic factors affecting all asset classes alike; there remained a healthy lending environment specifically within the strong student housing sector.
Mitchell Korte , Executive Vice President of Development at Subtext also shared similar sentiments stating “as student housing has evolved into an institutional asset class…we’re seeing increased interest from groups that haven’t historically invested in this product type.”
One advantage held by the student-housing sector over other real estate types is access to agency financing through entities like Fannie Mae or Freddie Mac . These multifamily lenders offer products tailored specifically towards funding developments within this niche market segment ranging between $5 million – $100 million dollars per project respectively.
However even these agencies have limits which are being reached as developers look elsewhere for creative ways to finance their projects. Eric Gould , Senior Project Manager and Student Housing Expert at PMA, noted that the reduced availability of capital has led to an increase in public-private partnerships between developers and universities as a means to fund new developments. These arrangements benefit both parties by freeing up funds for enhancing the building itself while also providing additional revenue streams for universities through long-term ground leases.
Other traditional sources such as life companies, debt funds, banks and agencies are also being utilized according to Sean Baird , Senior Vice President of National Housing Group at Colliers . While it may not be easy securing financing from these entities due to current market conditions affecting all asset classes; there is still some lending activity taking place within student housing.
Parker Champion , COO & Partner at Champion Real Estate Company observed that growth within this sector has opened doors for financeable investments though costs have increased compared with previous years. He further stated “debt funds remain active in the sector…while banks continue remaining on the sidelines.” However Layton mentioned he hasn’t seen a lack of appetite from lenders towards student housing despite current economic challenges stating “a lot of what we’ve seen from lenders has been fair given our environment.”
Overall experts agree that strong fundamentals such as higher enrollment rates and rent growth coupled with less distress compared with other real estate sectors make student housing an attractive option for potential investors seeking liquidity opportunities during uncertain times. Brent Little , President of Fountain Residential Partners added his thoughts saying “both debt and equity are easing in 2024’s first quarter…and will continue flowing back into this sector.”
In conclusion, while it may not be flush with cash like any other real estate class currently; there remains ample interest among various types of investors when it comes to funding projects within this niche segment – which ultimately benefits everyone involved by keeping competition healthy.
