When the question “what kind of commercial property is hot” comes up, the eternal qualifier applies: all real estate is local, your mileage may vary.
That said, there are widely felt economic trends concerning college education that are making the development of new student housing shine a little brighter than other kinds of development these days. One reason is the general trend of privatization — the blurring of the line between between the public, tax-supported institution and the private investor. This trend is showing up in all corners of the economy, turning public services into markets and supporting cash-strapped local governments with valuable investment capital without which they could not meet the expanding needs of the public.
In higher education, this translates to the reduction of state budgets driving universities toward a private development route in student housing. A recent piece by Jeniffer Duell Popovec in NREI highlights the situation by looking at the recent development activity of the largest and oldest real estate investment trust in the student housing space. Business is booming in student housing:
The student housing development activity is driven by a number of factors in addition to the obvious supply-demand dynamic within the industry, according to Jamie Wilhelm, executive vice president of public-private transactions for American Campus Communities Inc. (ACC). He says higher education budget constraints, coupled with lengthy procurement and contracting processes, compel state-supported universities and colleges to seek out third-party development partners. Student housing REITs are involved with these schools to develop on-campus and off-campus housing.
ACC has largest development pipeline of all three student housing REITs, which makes sense given the fact that it’s also the largest and oldest REIT in the space. It has $593.4 million in owned development projects currently under construction with deliveries scheduled this fall and in 2013.
The developments are all core class-A assets close to campuses in their respective markets and on track to meet previously announced development yields in the range of 7 to 8 percent. ACC’s 11 new owned development projects scheduled to open this fall, which represent an investment of $385.4 million, are preleased at an average of 76.3 percent for the upcoming academic year as of April 20, 2012. Six of those assets leased above 90 percent.
The REIT says it has identified more than 200 markets and approximately 80 specific sites within these markets as potential future development opportunities. Its current business plan contemplates the development of approximately five to seven new student housing properties per year.
Has retail taken a backseat to the dormitory? Are office buildings playing second fiddle to new campus amenities in the competition for development dollars? One way to answer that question: student debt is federally guaranteed debt, and is credit extended to promote social mobility, e.g. the American Dream. Does your local proposed shopping mall or office complex get to use that narrative when seeking financing and buy-in?
- Commercial realty predicted to heat up in Q3 (chinapost.com.tw)
- Student housing landlords ‘should consider home improvements’ (ratedpeople.com)
- Residents reject new student housing projects all over the country (inspectingsunnyside.wordpress.com)