“Exploring the Student Housing Sector: An Analysis of Debt and Equity in 2023”
As we reflect on the state of commercial real estate (CRE) projects in 2023, one topic that has garnered much attention is the availability of capital. Headlines and expert commentary have highlighted concerns about lender pullback, stricter underwriting requirements, and rising interest rates for certain asset types.
Interestingly, a search for “student housing” and “financing” yields limited results. However, one notable article from September 2023 published by Crittenden Report sheds light on this topic. The report reveals that student housing remains a favored asset class among institutional sources and life companies who are providing both equity and debt options. However, these opportunities are only available to experienced developers with strong fundamentals such as proximity to campus amenities.
In line with this report’s findings, experts agree that student housing financing presents a mixed bag similar to other CRE sectors. While capital may not be abundant in 2023 overall , there is still a healthy lending environment due to the strength of this industry according to Andrew Layton , Chief Acquisition Officer at Student Quarters . Mitchell Korte , Executive Vice President at Subtext Development also notes an increase in interest from groups historically less involved with student housing as it evolves into an institutional asset class.
One advantage for student housing compared to other real estate types is its access to agency financing through Fannie Mae or Freddie Mac . These government-sponsored enterprises provide loans specifically tailored towards multifamily properties including those designated for students ranging between $5 million – $100 million .
However despite these options being widely utilized within the sector there has been increased reliance on alternative sources due reduced available capital leading universities & developers finding creative ways finance their projects according Eric Gould Senior Project Manager & Student Housing Expert PMA Group . One method involves public-private partnerships which have proven beneficial by reallocating funds traditionally used land acquisition back into enhancing the building itself. This arrangement also benefits universities by providing additional revenue through long-term ground leases with private entities.
While traditional sources of debt and equity may be constrained in 2023, Sean Baird Senior Vice President at Colliers National Housing Group notes a cautious approach towards student housing financing is not unique to this sector but rather reflective of current market trends. However as interest rates begin to stabilize and even decline, more players are entering the student housing space including banks who have stepped in as agency lending decreased late last year.
Despite these challenges, Parker Champion COO & Partner at Champion Real Estate Company remains optimistic about growth opportunities within this sector which has opened doors for financeable investments albeit at higher costs due to increased interest rates making it more challenging hit debt-coverage ratios . Andrew Layton echoes this sentiment stating that while lenders have been fair given current economic conditions there is still strong demand from foreign investors for student housing properties. Domestically , there has been an increase in lenders willing invest into space compared five years ago creating healthy competition among providers according Layton .
In conclusion , although capital may not be flowing freely throughout all CRE sectors including student housing; its strength lies within its ability attract liquidity despite challenges faced by other asset classes . As we look ahead into 2024 experts predict continued easing restrictions on both debt & equity options leading greater investment activity within industry overall . Additionally lack distress seen other real estate types makes compelling story potential lenders looking enter market further bolstering outlook future growth prospects according Brent Little President Fountain Residential Partners .
Overall , while it’s clear that access capital will continue remain challenge across commercial real estate landscape ; those involved with investing developing or operating properties should take comfort knowing their assets hold own when comes finding necessary funding support business objectives moving forward .”
