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Aug 4, 2017

Student Housing Construction Booming Across the Country: Unprecedented Trend Shows Little Sign of Slowing Down

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In Flagstaff, work has been completed on a $30 million apartment complex specifically geared for students at the nearby Northern Arizona University.

The Fremont Station, featuring one, two, four, and five-room units, as well as a clubhouse, pool and two spas, is now accepting tenants in what is expected to be a swift renting out of more than 200 units.

In Las Cruces, construction is underway on a $28 million, 300-unit apartment complex called the Horseshoe Village Apartments that will serve New Mexico State University students. The project will feature one and two-bedroom units, as well as a clubhouse and commons building. Work on the first phase of the facility is expected to wrap next summer.

 In Boulder, construction of the big $96 million Williams Village East Residence Hall, designed for students at the University of Colorado, is slated to start this fall. The 147,000 square foot building will include social and recreational space, as well as housing for up to 3,600 students.

All three projects, and hundreds more across the country, represent a student housing market that has enjoyed an historic pace of growth in the last 10 years and shows only marginal signs of slowing down.

“It’s a permanent trend,” says Norm Miller, who is a professor of real estate finance at the University of San Diego. “And although it’s not going to increase as fast as it has it the last decade, it’s certainly going to have a permanent share of the market.”

The boom had a lot to do with rocketing student enrollment increases during the early years of the Great Recession. And in fact, according to the New York Times, is still regarded as a “relatively new asset class when compared with other property types.”

Indeed, continued the paper, “with its growth prospects, steady revenue streams from rents and comparatively high capitalization rates,” student housing has emerged as a “popular investment tool for big institutions.”

Miller says one of the reasons for the boom is that while many universities continue to be involved one way or another with student housing projects, many more have exited the field altogether.

“In many respects its simply a matter of the private market taking over what the universities are no longer doing,” says Miller. “Many universities simply don’t want to be in the business of providing housing.”   

And that exit, says Miller, who is a past president of the American Real Estate Society and an editor for the Journal of Sustainable Real Estate, has turned out to be a good thing—even for the universities themselves.

“If you look at the operational costs of the university-owned and operated dormitory or apartment building on campus, it is much high per unit than it is in the private sector right off campus,” he says.

“Universities are typically nonprofit, and this is just one of the areas that they are not nearly as good managing as the private sector,” Miller continues. “They don’t have the expertise in terms of how to set the rents or the fees, and they don’t really have the expertise in terms of how to manage the operating expenses.”

The decline of university-owned student housing has also turned out to be a good thing for companies like American Campus Communities, a Bee Cave, Texas-based developer of university housing. This year the company is building at least ten new projects with a combined value of more than $600 million.

Another biggie is the Chicago-based Core Campus, which has developed more than a dozen large student housing projects in recent years for a total of 7,400 units. Core Campus is projected to do two dozen more projects in the next three years with a total of 11,000 units.

Altogether, according to the apartment market data firm Axiometrics, nearly 50,000 off-campus bed spaces will be built by American Campus Communities, Core Campus, and other developers before the end of this year.

But while such projects may seem, with a ready audience and usually more than cooperative local planning officials, like a developer’s dream, recent off-campus housing proposals have tended to engender spirited opposition from nearby residents, making the projects themselves, if not more expensive, then certainly more time-consuming.

One such proposal in Flagstaff by Core Campus endured two years of public meetings as a result of neighborhood complaints regarding its density and scope before winning a final court battle this spring.

“Student housing does tend to be more dense,” notes Miller, “and for that reason neighbors will claim that these projects increase parking requirements in the neighborhood and add traffic and maybe weekend noise.”

But Miller contends that despite such opposition, more student housing projects will be the order of the day for the foreseeable future for one good reason: they make a lot of money.

“There is a high probability that the units will stay filled,” says Miller, adding that developers “finance these things at nearly 100 percent, and that’s very appealing.”

 

By Garry Boulard

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