Developing urban student housing projects takes a unique skill set, but the payoff is worth the extra effort.
Many smaller college towns, especially those in Sunbelt states, are very conducive to new student housing development. Land is plentiful, barriers to entry are low and zoning regulations are less restrictive. However, this isn’t always a good thing.
“[In the Sunbelt], the competition can construct a student housing property one mile down the road, and if it is newer and offers more amenities, then the students will flock to the new latest-and-greatest property,” says Louis Hanna, chief marketing strategist for Corigin Holdings.
These trends led to overbuilding in many traditional strong college markets. When the recession hit, many saw student housing as recession-proof and flocked to the sector in a rush to keep balance sheets in the black and company doors open. Communities kept opening, each one trying to top the other to get students to sign on the dotted line.
However, apart from these traditional markets, there is a completely different subset of student housing that operates by entirely different rules. Urban student housing projects can be more difficult to develop, but the benefits of the property type — especially when it comes to income generated — can be much greater.
“Urban student housing is an acquired skill set,” says Hanna, whose company is one of the largest private housing providers to New York University, operating five properties totaling 715 units (the company's 80 Lafayette project is pictured at left). “It is far more difficult to develop within urban areas. For example, zoning, entitlement and land assemblage issues are much more complex in an urban environment. This complexity, coupled with a limited supply of land, creates opportunities for those owners and operators with urban experience and expertise.”
Zoning can be especially difficult in a place like New York City. Several years ago, the city updated its building code to provide increased restrictions on the development of purpose-built student housing projects. The code stipulates that a developer must have at least a 10-year lease with an accredited, four-year school signed before building a student housing project.
This change was in response to a loophole developers would exploit, through which they would get their projects approved as student housing, then convert the units into condominiums and sell them off, taking the incentives gained by zoning it as student housing with them along with the money from the sale. This code change nipped that practice in the bud. However, private student housing development in the city practically ground to a halt.
“[The code change has] really killed the initiative of private developers,” says George Scott, president and founder of Educational Housing Services (EHS), another New York City student housing owner. Scott adds that the city has more than a million college students and, with vacancy rates in the low-single digits, faces a chronic shortage of student housing.
In light of this new paradigm, EHS had to change the way it developed its projects. For one of its more recent projects, a 15-story, 520-bed project located at 55 John Street in Manhattan’s Financial District, the developer saw an opportunity to redevelop a building into student housing. So, it went to nearby Pace University and explained to the school that it had a building as well as the capital to complete the project. It then asked Pace to lease the building, and the school agreed. It was a risky move, since EHS has already placed a deposit on the building, but it paid off and the project was completed in 2007.
EHS is not the only developer the school is partnering with, either. A joint venture between SL Green Realty Corporation, Jeff Sutton and Harel Insurance & Finance is developing a project for Pace at 180 Broadway. The joint venture will develop a 24-story building, the top 20 floors of which will be leased by the university to provide 600 beds of student housing. The lower four floors will contain retail space and will be controlled by the joint venture. The project is replacing dormitories the school currently operates in Brooklyn Heights.
Once an urban project is approved, a student housing provider has to deal with the obstacles presented by designing in a denser setting.
“Many of these campuses have limited land, so they want to get the most out of the land they have,” says John Baxter, education sector leader with EYP Architecture & Engineering.
Often, this means going vertical. While Baxter says he does not prefer for student housing projects to rise above four floors, sometimes the nature of the project dictates that more floors will be needed.
“One of the bigger challenges in designing a denser residence hall that is taller is creating areas within the floor plate that give students the opportunity to feel like they are part of a larger community that is not too large,” Baxter says.
Creating that community feel is most often accomplished within the building’s public spaces. However, students today want the choice of where to study or congregate. When EYP is designing student common areas, it likes to provide a variety of areas within one space, including study nooks, small and medium gathering areas and even small balconies, all of which can provide a student with as much privacy as he or she desires. No matter the design feature, the goal is to “activate” the space, Baxter says.“The last thing you want, particularly with freshmen or sophomores, is students hibernating in their rooms,” he adds.
The current generation of students is also more environmentally focused, so making sure a new residence hall demonstrates a commitment to sustainability is important for schools and housing providers. In Los Angeles, Symphony Development recently completed a new project near the campus of the University of Southern California. West 27th Place contains 161 units and is located at the intersection of Figueroa and West 27th streets.
What makes the project notable is that it is seeking LEED-Platinum certification. Once it achieves the designation, it would be one of only four buildings in the city to have the highest level of green certification and the only residential building with this distinction, according to the developer. Symphony hopes to do this with features such as high-efficiency windows and insulation, preferred parking for low-emitting and fuel-efficient vehicles, bicycle storage, and elevators that use regenerative braking to produce electricity that is then added back to the grid.
The idea of a building having several uses is common in urban environments, so students in these locales are used to the fact that their educational buildings and residence halls should do the same. This is one of the reasons why the idea of live-learn communities has caught on in urban campuses. Last year, EYP designed West Hall, a new community (which is also LEED-Gold certified) located on George Washington University’s Mount Vernon campus in Washington, D.C. (pictured at right). The 132,000-square-foot building provides four floors of suite-style student housing above two floors of educational space. The building contains several features for arts majors including a 150-seat black box performance area, a dance studio, music practice rooms, and an arts suite containing a studio art room, a digital art room and a recording studio. Other features of the building include student meeting rooms, a large multipurpose room, a fitness center and a dining hall.
Once an urban project is designed, student housing developers often have to take a look at the existing property they are dealing with. EHS commonly redevelops existing buildings, often hotels or senior housing facilities, into student housing. Scott explains that hotels are the most efficient use of space and the easiest to convert into student housing, an important fact when one considers that the cost of developing a student housing project in New York City is approximately $1,000 per square foot.
“We believe we have the ultimate flexibility versus having an apartment building in the middle of Texas,” Scott says, adding that the multiple demand drivers of an urban housing market give them several options if a student housing project does not become profitable. The company could always convert the property into market-rate housing for young professionals or seniors, or it could convert it back into a hotel. While it may seem like developing urban student housing is more trouble than it’s worth, the financial advantages presented by this property type make it well worth it.
“Because you’re in these urban environments, you obviously have higher costs, but you have higher rents,” Hanna says, adding that multiple demand drivers and limited supply translate into very low vacancy and much higher rents. He adds that because of this potential for higher revenue, Corigin Holdings is expanding outside of New York City and is currently looking at student housing opportunities in major East Coast metropolitan areas from Boston to Washington, D.C. The competition level in these markets is also lower.
“Many of the publicly traded REITs have limited exposure to urban student housing,” Hanna says. “They are developing primarily within the Southeast-Southwest Sunbelt states and, to a lesser extent, classic college towns.”
For all the challenges presented by developing urban student housing, those who do it could not see themselves looking elsewhere. The property type offers higher challenges but higher rewards for hard work and dedication to creating a quality product.
— Coleman Wood