Market Profile: Tempe, Ariz.
Home to one of the fastest-growing schools in the nation, Tempe is known for its consistent demand for housing, on-campus and off.
A national space grant university and metropolitan public research institution with popular programs in medicine, law and criminal justice, Arizona State University (ASU) is also well known for its housing program. ASU's housing has undergone major changes over the past few years. All freshmen live in a residential college based on their program of study. To meet the demand for on-campus housing, ASU has added approximately 3 million square feet and more than 7,000 beds to the system in the past decade. Currently, the university has the capacity to house 13,000 students throughout its four campuses, and all new housing construction has been completed through partnerships with the private sector.
"ASU has led the nation in the development of privatized on-campus housing like nobody else," says American Campus Communities CEO Bill Bayless. A majority of ASU's expansion was accomplished in partnership with ACC. The university also has partnered with Capstone On Campus Management, Inland American Communities and others. "ASU has utilized virtually every form of private sector transaction financing available,"adds Bayless.
According to Jennifer Hightower, associate vice president of student services for ASU, the residential program is a large part of the university's goal of developing a new model for higher education.
"The residential college on all four campuses has increased applications and has contributed dramatically to increasing retention and successful graduation," she says. "We strive to provide safe, nurturing and inclusive residential communities that foster academic and personal success. The university's housing department offers a variety of living options for students that include double rooms, suites, apartments as well as single-family detached homes at our Polytechnic campus."
The students keep coming. According to the university, fall 2012 semester enrollment figures were ASU's highest number to date with 73,373 undergraduate and graduate students, topping 2011's figure by 1,119 students. This figure includes nearly 9,300 first-time freshmen.
The on-campus requirement for first-year students has not taken renters away from the off-campus market. "ASU has grown enrollment by a greater number than the beds they have added on-campus," Bayless says. "So the school has been a greater contributor of demand than of supply, which is not always the case in every market."
American Campus has been owning and operating in Tempe since the late 1990s, when it bought one of the first purpose-built properties in the market, which was then called The Village on University, now called Gateway at Tempe. ACC saw some drawbacks to owning and operating off-campus, so Bayless says moving on-campus and focusing on ownership through ACE transactions (which use American Campus equity to develop) was the right move.
Vista del Sol was the first ACE project on the main campus. The apartment-style housing for upper-division students opened in 2008. Since then, ACC has developed the mixed-use Barrett Honors College that includes housing, food service and faculty space, freshman housing and dining facilities on West Campus, and the redevelopment of the iconic dorm Manzanita Hall, which opens this fall. The $50 million renovation project included input on design from students with the Residence Hall Association. The 50-year-old building was originally designed to house 1,000 students and will now house about 800 in the College of Liberal Arts and Sciences Residential College. ACC has also built other properties for ASU.
"Rents are too high off-campus," Bayless says. "I scratch my head as people think about developing more there. You see a lot of urban high-rise development taking place. By nature, you will have to charge a high price to get your required yields because of the cost of land and construction. There are not enough students who can afford the price point to be successful. Vista del Sol, for example, was very affordable frame construction that enabled us to have a low cost basis. Our data backs up what we think of the off-campus market. We tracked 11 special use products that have come online in the past decade. In fall 2012 they were only 80 percent occupied. When we bought Campus Acquisitions, the Tempe property, The Vue, was only 61 percent occupied."
ACC renamed the property 922 Place and dropped rents 15 percent when they bought it. Bayless says that as a result, 922 Place is now 81 percent pre-leased as opposed to 48 percent one year ago.
"The reason this building was so lowly occupied is consistent with the rest of the market. Once we lowered the rates 15 percent, we had the chance to increase occupancy by 30 to 35 percent. We'll have a great return on that deal, it was just priced out of the market."
Although the trickle down effect has many wondering if the higher priced rents at newer properties could be creating a soft market, others see promise for all price points in the striking enrollment numbers and in other traits that make Tempe unique. These traits include the growth of Fortune 500 companies that are close to campus and the announcement that State Farm will build a 2-million-square-foot office headquarters in Tempe, according to Cindy Cooke, executive vice president of multifamily investments for Colliers International's Western Region Multifamily Services Group. With more than two decades of experience in the Tempe/Phoenix/Scottsdale multifamily market, Cooke and her team work closely with Colliers' student housing group that consists of Dorothy Jackman and Travis Prince. Jackman says the two newest properties that are delivering this fall, Core Campus' The HUB on Campus and The Residential Housing Development's District on Apache, demonstrate sophistication and a hefty contribution to supply. [Since press time of this original article, The HUB was sold to Inland American Communities.]
"We're seeing very strong investor demand for student properties close to ASU," Jackman says. "The units that will be delivered this fall from the two properties are ultra high-end. We began to see student housing deliveries begin to change to a more modern product with increased building heights and larger floor plans. We're seeing much of the same today, however, the newest product being delivered is ultramodern inspired high-rise with cutting edge services and resort-style amenities never before seen in student housing."
Cooke says that in the past 12 months Tempe has seen 19 properties trade, of which 58 percent were student housing or student-oriented communities. "The majority of what's trading is older, vintage product where the new ownership is coming in and executing an extensive value-add proposition," she says. "We are seeing this type of transaction most often due to the lack of available, affordable land in the ASU submarket."
Benjamin Modleski, partner and chief operating officer of Core Campus, says the HUB product is aiming for the top-shelf amenity experience that supports academics as much as socializing. Close to classes with views right into the football stadium and more than 40 different floor plans, the HUB On Campus features amenities that are lavish, even for student housing. The swimming pool includes an island and a "lay out" pool with chairs submerged in the water, private cabanas with TVs and a 22-foot LED video wall, and a virtual fitness center where students can dial up any type of exercise class. On the 19th floor, eight units are penthouse suites, with views and individual outdoor hot tubs. The penthouses, in four- or three-bedroom configurations, rent from $2,897 to $3,706. According to Modleski, this property will set the bar in rental rates. At press time, the community was approaching 95 percent occupancy. According to Cooke, the average market rent in Tempe is $1,790 or $1.68 per square foot.
"The Core Campus HUB projects are simply the most amenitized student properties in their respective markets," Modleski says. "HUB is all about excess and enjoying the comforts of a resort inspired lifestyle. We find that building student housing with a focus on providing an amazing educational experience along with a social experience unlike anything seen in the market helps set us apart from the competition." The development also features quiet, study-centered floors.
The 1,200-bed District on Apache will also feature high-end amenities, including an outdoor kitchen and lazy river pool.
According to Jay Denton, vice president of research for Axiometrics, the existing supply will have some competition due to the number of new beds coming online. But from Axiometric's research, he says the growing enrollment bodes well for the overall private housing market.
"The District on Apache and The Hub on Campus are both within walking distance to campus and have increased the off campus supply," Denton says. "Privately owned student housing saw rents and occupancy increase in 2012, pushing revenue growth up."
— Lynn Peisner
When in Tempe...
Our sources share their picks for down time when visiting the Tempe, Phoenix and Scottsdale areas.
Cindy Cooke, executive vice president multifamily investments for Colliers International's Western Region Multifamily Group
Caffe Boa. They have the best organic, handmade pasta in the valley, especially the gnocchi. Monti's La Casa Vieja originally opened in 1954 and can't be beat for all around great food and service.
Alex Sampson, research associate, multifamily investments for Colliers International's Western Region Multifamily Group
Slices Pizza Joint is hands-down the best New York style pizza for lunch or late at night. My other favorite is Four Peaks Brewing Company. They offer their own locally crafted beers and a great patio. I recommend the Popper Burger.
Brad Cooke, vice president, multifamily investments for Colliers International's Western Region Multifamily Group
House of Tricks. Aside from this being the place I took my wife on our first date, its gracious atmosphere, fine wine list, splendid cuisine and superb service make it my pick when visiting the area. American Taco Shop is also a great place to grab a quick lunch. I highly recommend their al pastor tacos.
Benjamin Modleski, partner and COO of Core Campus
Tempe has lots of fantastic dining options, but one of my newest favorites is Salut Kitchen Bar. The food here is inexpensive and perfectly prepared, and the wine selection is strong. It's the perfect place for happy hour or a light meal. For a more elegant dining experience, I recommend Elements. Chef Beau MacMillan, a former "Iron Chef America" winner, prepares meals that are as amazing as the views you will have on top of Camelback Mountain.
When I stay, I try to always get a room at the Hotel Valley Ho in Scottsdale. Great rooms, a fabulous location, a true iconic hideaway with a retro-cool style and the most pleasant staff anywhere in the country. If you stay the weekend, be sure to check out the Saturday pool parties with DJ Mr. P-Body.
From the American Campus Communities team:
Teri Bump, vice president university relations
For breakfast, I like La Grande Orange. For Italian it's Caffe Boa.
Jennifer Jones, senior vice president development and finance
For Mexican food, it's Blanco. With dinner at St. Francis.
Jamie Wilhelm, executive vice president, public-private partnerships
Breakfast hole in the wall: Matt's Big Breakfast. Another favorite hole in the wall is Cornish Pasty.
Jason Wills, senior vice president on-campus development
For a greasy burger, the on-campus Chuck Box. Stingray for sushi.
Victor Young, senior vice president management and construction
For dinner, Bandera. I go for the jalapeno cornbread. For pizza, Grimaldi's.