Spotlight on Financing Student Housing

Eric Jordan, vice president, Fund Development at Calmwater Capital, speaks with College Planning & Management about the changing landscape of student housing, and the evolving role of real estate lenders in this realm.

In recent years, student housing has become a mainstream investment category. Demand is high and many investors are looking at student housing as a way of diversifying their portfolio. Eric Jordan, vice president, Fund Development at Calmwater Capital, works closely with developers and investors to determine finance strategies that cater to the changing demands of student populations. Eric spoke with College Planning & Management about the changing landscape of student housing, and the evolving role of real estate lenders in this realm.

Q: What is the current state of the student housing market?
According to a recent report from Axiometrics, student housing transaction volume totaled more than $9 billion in 2016, which is a 62 percent increase from 2015. Developers and investors alike are constantly catering to the changing demands of diverse student populations and are dedicated to supplying much-needed housing on or near universities across the nation.

Although tuition and student debt are constantly on the rise, the majority of schools across the nation are still growing enrollment. In fact, some universities are struggling to keep up with growing student populations and are experiencing an undersupply of housing. Therefore, enrollment trends are creating demand for student housing, leading to competition in the market. This asset class generally poses lower risk due to high tenant diversity and the common financial provision from parents or guardians. However, maintenance expenses are typically higher than other multi-family properties.

Q: What does financing for the student housing market currently look like?
As with any other asset class, financing student housing comes with its share of risks. In order to have success in such a competitive market, developers need to have an understanding of the leasing cycle at particular schools, and be prepared to compete with development projects nearby. They must ensure modern and up-to-date amenities and furnishings, and adapt to the changing demands of student populations.

Similar to other commercial properties, student housing can be identified as Class A, Class B, or Class C. Class A student housing includes new construction located in major college towns and often features on-site amenities like pools, gyms, and clubhouses. Class B and Class C properties are typically older buildings that may require updates to keep up with competition with newly constructed complexes that charge higher rents.

Leasing for student housing is offered either by room or bed, not by the entire unit. Therefore, leasing terms are often one-year durations, leading to higher annual turnover rates and an active shortened leasing cycle, requiring vigorous marketing. Students often search for rentals at least a year in advance; therefore, it is crucial to list properties ahead of the available date. Off-campus student housing is a major market, which in turn impacts a city’s overall apartment availability.

Q: What are developers doing to keep up with demand?
Students recognize that on-campus student housing complexes are often outdated or are in short supply of amenities. This allows room for developers to create much-needed private developments off-campus that truly cater to student needs. Developers are adapting to advances in technology that are shaping the market. Amenities like high-speed WiFi, fitness centers, communal areas, washer/dryers, parking, and fully furnished units are important features to consider in order to meet the needs of the student tenant base.

Overall, when invested in wisely, student housing can be a beneficial asset class to build one’s portfolio. The student housing market continues to mature and with the current demand in enrollment, opportunities to invest are paramount.