The SHB Interview: Joe Coyle
For Joe Coyle, the second time in student housing is the charm. After helping build an industry leader at GMH, Coyle is now building a student housing company for The Michaels Organization.
Many people in the student housing industry were surprised to see Joe Coyle again in 2010. After seven years out of the industry, he returned working for The Michaels Organization's newest company, University Student Living. The Michaels Organization is widely known in traditional multifamily as one of the nation's largest developers of affordable and urban apartments. The organization is merging its prowess in affordable and urban housing with Coyle's student housing smarts to create new product types. SHB sat down with Coyle, who serves as president of University Student Living, at the recent NAA Student Housing Conference in Las Vegas.
SHB: Most people might assume you took the normal route of entering multifamily and then converting to student housing. But your route was more circuitous, yes?
Coyle: My background is in the financial industry. My career started in public accounting and then insurance, which included underwriting financial guarantee bonds. I eventually became involved in syndicating real estate, mostly acquisitions of apartments, retail, office and industrial projects in the 1980s and '90s. My next step was joining GMH to do acquisitions. Shortly after I came onboard with GMH, the company acquired a portfolio of student housing from Polar-BEK, which was one of the first projects that Mike Mouron ever did before founding Capstone. I became President of that company, College Park Communities, and I've been immersed in the industry ever since, with a break in between.
SHB: How did your career transform from that point?
Coyle: From 1995 to 1998 we went from two student housing properties up to 38 properties which positioned the company at having the largest student housing portfolio in the country. We then had the opportunity to sell most of the properties to the related universities, but kept several of the management contracts. During this time, we also became heavily involved in military housing. We won $800 million of military housing while we were still running the student housing business. At this point, the company went public as GMH Communities Trust. Not surprisingly, the culture and dynamic of the company changed when it went public. I prefer the long-term thinking and strategies that come with a business that is focused on what it does rather than tactics for the quarterly stock price. I left GMH in 2004 with a non-compete agreement, and started searching for a worthwhile interim challenge outside of student housing. I was drawn to a company that had a good mission, providing long-term care for medically fragile children, but it was in a very bad financial situation. I stepped in as president and stabilized the company within two years. Over the next seven years, the company grew to five facilities and became positioned for a national expansion. At that juncture, I decided the best option was to sell it to a company that had the extensive resources required to care for these medically fragile children. This was the turning point where I knew it was time to once again start looking at student housing. The Michaels Organization — which employed a number of my former colleagues from GMH — approached me about leading their new student housing company. It only took a minute to see the potential; the opportunity offered the solid resources and skills of The Michaels Organization and access to a talented team that I knew could hit the ground running. We launched a week and a half later.
SHB: What is your role in the company? What do you do day-to-day?
Coyle: My energy is focused on finding the right markets, locations and partnerships.
SHB: Where are the opportunities in student housing at this point in the cycle?
Coyle: The business is getting overheated for off-campus development. The on-campus business is going to be a big focus for us. As a company of The Michaels Organization, University Student Living is as big as any of the REITs in the industry. Our current portfolio is not heavy in student housing, at least not yet, but from a financial and experience standpoint, we manage and operate more units than anyone else in this space. Our partners, for both on-campus and off-campus development, recognize that strength.
SHB: What have you done on-campus with Michaels/University Student Living thus far?
Coyle: When I joined two years ago, The Michaels Organization had already won an on-campus deal. I hate to admit that they did it without me! It is at the Camden Campus of Rutgers University. It is a large project in an urban environment that we completed on-time and under budget. In the future, we are going to look at all the various housing needs around campuses, such as faculty housing, workforce housing, as well as undergraduate and graduate housing. Since we have the resources and flexibility to mix and match living, retail and office space as needed, we look at all residential types. It is nice to have that flexibility.
SHB: Are universities coming to you looking for mixed-use properties? What are colleges asking for, and what types of schools are these?
Coyle: Surprisingly, it is every size school that needs some level of assistance. There is so much business out there from universities that we would not have to run into any major competitors over the next five years. There is a need for quality housing; there is a need for finding money in the private markets for university buildings. We believe that private equity is going to find a place on campus. That has already happened with bookstores and it will happen with housing because it is such a core part of campus. Some universities realize now — much the way the Department of Defense did — that there are benefits to having private industry run their housing. The privatized-housing model for the military has been tremendously successful.
SHB: Are you seeking out opportunities where smaller schools want you to manage all their housing, or the process of housing?
Coyle: We could do a large or small university. I'm more interested in the schools who realize they have a need and that privatized housing could be a good alternative. The deal that EdR did with Kentucky is interesting. I read Bill Bayless's comments in this column recently where he said he didn't think that type of deal [EdR-Kentucky] was going to happen that much. He's probably right. If schools have a choice, they are going to build housing using their balance sheets first. Their second choice is to use tax exempt bond financing with private expertise. The third choice is to use private developers' equity and expertise. We are in a perfect storm right now for some universities: the economy has not come back that much; there are a number of schools that may fail; student loan debt has surpassed $1 trillion; and many states do not have money to give to schools at this point. That will drive many schools to look at private equity and expertise to get things done less expensively.
SHB: Is there any fear as an owner of the student loan bubble bursting?
Coyle: You'd be foolish not to have a fear of that. Be prepared; the bubble is going to burst.
SHB: What is the fear?
Coyle: The cost of education has risen at twice the rate of inflation for the past 25 years. No one can keep up with that; it's impossible. The loans we've made to students help drive that cost increase. I believe we are going to wind up with caps on the amounts that students will be able to borrow. That's a smart thing. Those caps will affect where students can afford to go to school. I still believe that there is a need for being educated on a campus. I don't think everyone will get their education online but I see where there could be some more transition towards the hybrid model.
SHB: Under that scenario, will that pressure to get the most for their money push more students to secondary and tertiary level schools, or online?
Coyle: If you look at what generally happens in real estate, your Class A product falls to class B rates. Your top schools will wind up dropping their tuition; everyone will wind up a step down. Like real estate, the Class C and D product can't drop further and effectively compete. They need to reinvent themselves and evolve into something else.
SHB: With that in mind, what are your goals for moving Michaels and University Student Living forward in student housing? How are you protecting yourself from your theory?
Coyle: We are focused on places where people haven't done a whole lot of purpose-built housing. If I go to a market where there is already purpose-built student housing, I will only build something with a different twist or advantage, such as an apartment community that is closer to campus. In Cambridge, Mass., we are developing an apartment community close to MIT, but it is not designed exclusively for students, even though students will live there. It will also be an attractive option for people who work around or near the campus. In many locations, we have moved away from looking solely at purpose-built student housing.
SHB: It's student-like housing!
Coyle: Yes. I will also branch out from there and look at traditional multifamily where the market needs it. We see a definite opportunity to continue to serve a post-graduation market as well. We anticipate a new style of multifamily that will provide the same amenities, services and social environment that a student housing community provides. There's going to be an appetite for what we deliver. It won't be by the bed — but a lot of the amenities will be similar.
SHB: Are you looking at the future for some of your new projects when you review design?
Coyle: Every day. Right now we are looking at utility costs and figuring ways to get off the grid. If we promote these features on-campus, it makes the delivery and integration easier. On some projects we can self-generate the electricity we will use, or at least use just a small amount of utilities. It's not "green building" for green building sake. What I care about is being economically smart and doing something really sustainable instead of just talking about it. We haven't rushed into it, but there are a few processes now on the table that we are taking a hard look at — they are energy savers that are in the early stages. We will be one of the first developers to use these alternatives and bring them to the student market.
SHB: Are you doing any acquisitions or dispositions?
Coyle: Yes. My focus is only value-add assets. The property would have to have a management problem, be under-preforming or be positioned for re-use or redevelopment. As for dispositions, the first month I came to Michaels, we bought a piece of land and 60 days later sold it for twice the amount. If the opportunity arises, we will sell, but to date, that is the only property we have disposed of. Our strategy is to build a robust student housing portfolio.
SHB: What do you have in your pipeline?
Coyle: We have about $500 million to $600 million of development deals in the pipeline across student housing and apartment-style projects. Most of them are mixed-use, and there are two on-campus projects.
SHB: What about Michaels attracted you to the company?
Coyle: I was attracted to a strategy that was more long-term and based on building successful partnerships and repeat business. I was also impressed by the culture of the organization; it is a model for how for-profit companies can achieve financial success and be true to their mission, which is to build communities together with other organizations. The organization works with housing authorities and cities on the traditional multifamily side and The Michaels Development Company has built more affordable housing than anyone else in the country, and they've done it very well. It is a very strong organization. They've grown every year they've been in business since 1973 — even through 2008, 2009 and 2010, which is an impressive track record. They also take really good care of their employees; that has always been important to me. The people who used to work on my team at GMH who joined The Michaels Organization called me and said I was going to like it here. I don't have to spend time working on the culture of the organization; it's done. I get a chance to go out and do what I enjoy most, growing the business and creating new opportunities.
SHB: How has Michaels' strength benefited the student side of the business?
Coyle: My experience in conventional financing directly benefits the affordable housing. Our team can consider projects that previously might have been left on the table when there was no tax credit financing available. By combining the resources of the Michaels Development Company and University Student Living, we can look at developments that include both affordable and market-rate aspects, as well as some multi-use aspects. This also enables us to tackle broader projects with universities and with cities. That creates some pretty interesting opportunities and unique solutions.
SHB: What attracts you to a deal?
Coyle: A strong local partnership. When we develop in urban markets there is nothing better than having a partner who is familiar with the city who can tell you what's going on any given day. We also want markets with a story and a window for new opportunities — Arkansas is adding more students because the new lottery is helping to pay for it; Idaho State is letting out-of-state students in for the in-state rate using scholarships.
SHB: The University Student Living is located at The Michaels Organization's headquarters in Marlton, N.J., but you are based in...
Coyle: I'm based in Marlton....but I live in Baton Rouge, La.
SHB: How do you manage that?
Coyle: I travel there every week. I've been traveling to my job for a long time. I traveled to Philadelphia for my last job as well. I've been commuting like this for five and a half years, and I've done this most of my career. I moved to Baton Rouge for a beautiful woman whom I love — and I love it there.
SHB: What keeps you coming back to the student housing sector? What keeps you in it?
Coyle: I like the age group. I like the energy. When I first got in the business I liked seeing how our residents grew through the years. When I first started, my daughters were about the same age and I felt that I had an advantage in seeing how technology was affecting how students were learning and studying. I still find it fascinating. On the professional side, I find the people who work in student housing, both off-campus and on-campus, to be very passionate about what they do. Between the students and the staff, all the fresh ideas that come our way keeps me sharp. This industry is a kick. It is infectious; being around innovative students and universities makes for a potent combination.
SHB: What do you like about your job? What makes you get on that plane every week?
Coyle: The culture of the Michaels Organization. It is a family-owned company and they have created a culture where employees do feel like family. The owner, Michael Levitt, and the president of the organization, John O'Donnell, believe in their employees and the importance of providing long-term employment. All the presidents of the eight companies that form The Michaels Organization are empowered to go out and grow our businesses.
SHB: What do you enjoy outside of work?
Coyle: Because of all the travel, I love to read. I read a book a week. I play golf, tennis and racquetball. I enjoy biking, hiking and kayaking. In the winter, I enjoy skiing.
SHB: What causes are you passionate about?
Coyle: My passion for the previous seven years was taking care of children with severe medical issues. It was very challenging, educational and very rewarding to have had the opportunity to make a difference in people's lives at such a personal level. Now that I'm back into education, I am proud of what Michaels and University Student Living have done through their education foundation and how that can impact a young person's future. The Michaels Organization has distributed more than $3.1 million in educational scholarships to our residents. That's an important cause to me; I spend a lot of time raising money among our vendors. We are giving back to students every year and most of those students are coming out of affordable housing. Anyone who lives with us has the opportunity to ask for a scholarship. It is not $25,000 per year; but the amount does help open the door to getting an education. The added-value is that this program lets these determined students know that we believe in their potential. We operate supportive services programs at most of our affordable housing communities and recently spun off our supportive services into its own not-for-profit organization. This will give the organization more opportunity for growth through grants and additional sources of funding. The non-profit's mission is to help our residents break out of the circle of poverty that traps many families. Michaels is always trying to be innovative and this is just one of its innovations.
SHB: You've seen a lot of change in the student housing sector over your career. What do you like about that change, and what scares you about it?
Coyle: The change is not so much in what we do and what we communicate, as to how it is communicated; the vehicle is just different. I like how the Internet and social media provides great opportunities for faster processes, more interaction and a venue for resident feedback. On the development and design side, the bubble of 2001 really pulled us back from building too much; 2008 did the same. Certainly the property and apartment amenities have gotten more "high end". The industry is building back up and we are throwing a lot of luxury into the sauce. I would not say that it scares me, but we have to see if the market is ready for all that.
— Interview by Randall Shearin