Company Profile: Fountain Residential Partners
A typical project will be energy-efficient, walk-to-campus and near transit.
Fountain Residential Partners was started by three student housing executives who had deep experience in the market, and who saw an opportunity. At the end of 2010, Brent Little, Jon Clayton and Trevor Tollett — all former development executives at Place Properties — formed Fountain Residential. Little and Clayton both have a lot of experience developing student housing and multifamily properties with firms like JPI, Echelon and Trammell Crow Residential. At Fountain, they have wasted no time in getting a strong development platform underway.
"After 2009, most developers were on the sidelines," says Little. "There wasn't a lot of opportunity to grow and join another development company. We felt it was the right time to strike out on our own."
The Dallas-based company opened its first two projects for occupancy this fall. At Texas Christian University in Fort Worth, the company developed The Vue on University, a luxury student housing complex with one, two-, three- and four-bedroom suites. At Oregon State University in Corvallis, Fountain Residential recently opened 7th Street Station. Both properties opened with 100 percent occupancy.
For fall 2013, Fountain will be opening a second project at TCU called Loft View and a project near the University of North Texas in Denton called 33 Degrees North. The company also has a pipeline of projects it plans to develop beyond 2013.
"We really look for walk-to-campus locations," says Little. "The furthest any property is from campus in our pipeline is six blocks. To say that you can walk to campus is an understatement. We want to be campus-adjacent."
Many of Fountain's projects and sites are transit-oriented; light rail stops will be located near three of its first four projects. Fountain has also made an effort to develop projects that are energy efficient and that have condominium-grade finishes. They include granite countertops, stainless steel appliances, large flat screen televisions, massage showerheads, 36-inch soaker tubs and high speed wireless Internet. Little feels that high-end student properties are in demand in a number of markets where the student housing product hasn't been modernized. Even in those markets that do have new student housing, some properties miss the mark with a set of students who will pay top rent to have a long list of amenities and a location that is walking distance to campus.
"If there is anything we have done wrong, it is that we continue to underestimate our clientele," says Little.
To illustrate, the average rent per bed at The Vue is $1,023 per month. Little says that there were nights when he couldn't sleep, worrying whether there would be enough demand for the project. His worries were alleviated when the project quickly leased up by April and had a waiting list for 2013-2014.
"The market is saying, 'we want more and we want it better,'" says Little.
To accommodate the desire of better amenities in Phase II, Fountain is increasing ceiling heights from nine feet to 10 feet, increasing the size of the televisions it furnishes in the units, and improving the finishes and amenities throughout.
"We're continuing to evolve our product, and it is high-end evolving upward," says Little. "We believe that the best product plus the best location equals the best results."
Because location is as important to Fountain's residents as the quality of the finished unit, site selection is something that the company spends a lot of time on. Fountain's executives have had their eyes on many of the sites the company is currently developing for years and has many more that it is working to acquire and develop.
"In every market, it is difficult and competitive to find land," says Little. "In many instances, we are tearing something down to build new."
For Fountain's second project at TCU, the company tore down a retail center. In Denton, it razed some single-family homes on the property to accommodate its 33 Degrees North project. The company worked with a partner that had to aggregate six parcels of land to create the perfect site directly across the street from campus for the project.
Because of the nature of the sites Fountain has discovered, its projects tend to be smaller than most. The Vue on University sits on a 0.8 acre site, for example. In Minneapolis, Fountain has secured its largest site to date — a little under two acres — for a 550-bed project near the University of Minnesota. There, the company will develop The Station on 4th, starting shortly to meet strong demand in the market for a 2014 delivery.
"The University of Minnesota has over 52,000 students, with only 6,300 beds of on-campus housing," says Little.
To finance its projects, Fountain has forged financing from private investors and institutional lenders. HFF has handled most of the financings for the company's projects. Fountain and HFF are currently working on a financing package for The Station on 4th.
"Financing is a fairly competitive market for student housing debt and equity," says Little. "Our first two projects are 100 percent leased with a waiting list, so there is a great response to our business plan and the lenders and our investors see that."
Little feels that now is a good time to be developing, because of the state of the sector. Fountain plans to sell its developments once they are built, because of the current appetite for Class A student housing.
"Within the multifamily investment class, student housing is the best performer currently," he says. "We see significantly higher spreads between return on costs. Exit cap rates for very well located, urban core student housing real estate assets are about six percent. If you are able to build to 8.5 percent return on cost, the 250 basis point spread is significant value creation for the investors."
The Vue on University at TCU has just been listed for sale, and Little believes that the property will bring a number of strong offers. While Fountain does plan to sell, if market conditions change, the company is prepared to hold a property long-term as well.
"If there are certain metrics of a particular property or market, and it makes sense to hold the asset for a longer period of time, we certainly will," he says. "A lot of our competitors are doing pre-sale scenarios with discounts attached because they have to for capital reasons. We will do what's right for the property and our investors."
— Randall Shearin