The Distant Horizon

The position I hold with The Collier Companies is executive chair. Most of the time, what is on my mind, what I focus on, is the long term, the distant strategic horizon. As I contemplate how to successfully steer The Collier Companies (TCC) through the next decade, I look back on the vast changes that have occurred in the student housing arena over just the last few decades.

 

Nathan-Collier
Nathan Collier

The position I hold with The Collier Companies is executive chair. Most of the time, what is on my mind, what I focus on, is the long term, the distant strategic horizon. As I contemplate how to successfully steer The Collier Companies (TCC) through the next decade, I look back on the vast changes that have occurred in the student housing arena over just the last few decades.

History/Historical Change
I grew up in Gainesville, the home of the University of Florida. Back then Gainesville was a small, sleepy, southern town and UF’s enrollment was in the mid-teens. UF had yet to win an SEC football championship, much less three BCS national football championships and back-to-back NCAA basketball championships.


Today things are different. The University of Florida is bumping 50,000 enrollment and the local MSA is close to 250,000; a good size for a college town. Student housing has changed dramatically as well. In 1972, while a still a junior in finance at UF, I purchased my first rental property. It was a two-story duplex and I lived upstairs, renting out the downstairs. I got top rent because I answered my phone 24/7 and I didn’t care how often I showed it. I needed every dollar to make it through school.


Back then, student housing was largely a mom-and-pop business, single-family rentals or small, local developers building 80-unit apartment communities to house dorm overflow. Leases often were 9 months and on the national level students were looked upon as undesirable tenants. Lenders shunned the market, charging significant premiums if they were willing to lend at all.


How the world changed! Student housing is now a bona fide market niche with dedicated REITs. Fannie and Freddie have financing programs devoted to student housing, conferences vie for our attention, and magazines such as Student Housing Business are springing up to serve the unique needs of the student housing industry.


My single duplex rental has grown to a portfolio of just under 10,000 units with more than 20,000 beds. The Collier Companies houses almost 20 percent of the off-campus student body of the University of Florida. With six communities in Tallahassee, we also are the largest off-campus provider of student housing at Florida State. While TCC’s size is not quite that of public companies such as Bill Bayless’s ACC and Paul Bower’s EDR, we are one of the largest private providers of student housing and certainly the largest owned by a single individual.


The challenges of the coming decade will be many and diverse. We must continue to mature as an industry, building a solid base of statistics that will give confidence to Wall Street and the institutional investment community that student housing is a true asset class with the depth and transparency to warrant on-going attention and significant investment.


We must continue to prove that we can recycle capital, that we can deliver competitive returns. While we all now know that student housing is not recession proof, we are definitely recession resistant. I am certain that as we look back upon these trying economic times, student housing will have one of the better economic track records, demonstrating resiliency and steadfastness and providing competitive returns, especially on a risk-adjusted basis.


In the past couple of years, we all learned that risk is much greater than we supposed, that fancy computer models are just models, and that reality can be a bear. The world has changed in ways we cannot even imagine.

Population Trends?
I look for sweeping changes. I wonder at the impact on real estate of stable or falling population levels, such as Europe is currently experiencing. One of the givens of real estate is, “buy land: they aren’t making any more of it.” Yet if population falls, then there is, in effect, more land per person. So in that sense it is possible that “they” might end up making more land, a seismic upheaval in the way we view the world. America is projected to continue to grow over the next 50 years, well beyond my planning horizon. But, that growth is driven by immigration, not by our internal birth rate. If America ever ceases to be viewed as the land of opportunity and freedom, if we drift toward a government-run economy, if economic opportunities elsewhere become anywhere near as great, then population growth may slow significantly and the impact on real estate will be significant. Development will slow and lose viability as a business model, as brutal Darwinian competition for a shrinking pool of feasible opportunity occurs. Valuations may drop across the board as future growth is removed from economic calculations and the ability to simply maintain a steady state becomes a home run. “Never happen” is the instinctive reaction of many, yet I heard that same sentiment five years ago to warnings about the potentially catastrophic impact of toxic loans being made.

Future of Education, Thus of Student Housing
The future of student housing is intrinsically linked to the future of education. If the nature of education changes, if the process of education changes, then the student housing industry will inevitably change. The knock on education is that it is an inefficient process. We really don’t know how it occurs. We get the student and the professor in close proximity and rub them together and hope that something gets transferred, almost like alchemy. The capacity of the Internet has not truly been tapped in the education arena. Most institutions’ current idea of an Internet class is simply recording a class lecture and putting it online without any real attempt to augment it with multimedia or adapt it to exploit the potential rich resources of the Internet. What happens in a world where 3-D is so good that your professor can appear in your living room? That you can don glasses and see your fellow students or their avatars and virtually interact with them real time? How will education as we know it change? What impact will quality off-site education have on the student housing industry?


Student housing remains a bright spot in the overall economic future because of certain fundamentals: as the complexity of the modern world grows and grows, the need for education grows almost geometrically. Fortunately for our industry, those who consume the most education also tend to be in the upper percentiles of the economic demographic and thus make for a profitable target market. I do believe the profile of our future student market will grow ever more complex and diverse, that serving the ever-changing, always-evolving target demographic will require ever greater flexibility, marketing knowledge, and stronger service cultures. Getting prepared, being ready for that challenge, that’s what’s on my mind.