Industry Voices

Satyen Patel: The Evolution of Construction in Student Housing

Universities across the country are seeing an increased demand for state-of-the art student amenities. New dormitories are at the top of the list for many universities as their student population grows. But, as those of us in the industry know, construction on school campuses presents a number of unique challenges not shared by many other construction projects. The demand for on-schedule production, reduced waste, limited interruption and the need to stay on-budget are key factors that have little room for error.

Gilbert Davila: How to Fight Aggressive Property Tax Assessments

The student housing market is robust, generating strong market data that tax assessors are using to support increasingly aggressive property tax assessments. Thus, student housing owners must monitor their property values and arm themselves with the tools to fight excessive valuations. 

Forecasters expect the student housing market to grow for the next several years, primarily because of its stability. Healthy investor interest led to a 71 percent year-over-year increase in student housing sales volume at the end of the third quarter of 2015, according to Real Capital Analytics. In addition, the market’s average overall cap rate was down 37 basis points from the first quarter of 2015 to the first quarter of 2016. 

Combined with increased demand for beds that accompanies accelerating enrollment at the largest universities, these healthy fundamentals will encourage assessors to boost property tax assessments. In many cases, assessors will produce inflated valuations that cannot be supported by market data or realistic operating scenarios. 

Student housing owners should consider the following issues to combat aggressive assessments:

Evaluate the approach 

Assessors commonly derive a market value using one or more of the three classic approaches to value: cost, income or sales comparison. 

The cost approach is arguably the least reliable method if the property is more than a few years old, especially given the difficulties of estimating depreciation and obsolescence factors for older properties. An assessor will most likely rely on an income and/or sales comparison approach when valuing student housing. Taxpayers can achieve lower assessments by disputing how the assessor has applied a valuation methodology to a specific property. 

Challenge sales data 

Assessors are using the sales comparison approach more frequently, given the huge sale volumes previously mentioned. Student housing owners should remind assessors that a sale price does not necessarily equate to market value. 

While discussing comparable-sales data with the assessor, the taxpayer can sometimes discredit a sale’s relevance by outlining the physical and economic differences between the property sold and the assessed property. Point out to the assessor the factors influencing a buyer’s decision to purchase a property, which may make the sale incomparable to the taxpayer’s property. 

Did the assessor reference any portfolio purchases in the sales comparison? Point out that properties in a portfolio are typically priced as a group, and may not reflect market value. 

Finally, emphasize buyer motivations such as time constraints or income tax consequences that affected the price of the comparable property. Owners should consider a tax appeal even if the recent purchase price of their complex is higher than the current property tax assessment. Buyers pay for properties based on factors beyond real estate, so a purchase price should provide no more than a touchstone for an assessor. 

Taxpayers should outline the factors they considered in purchasing the property, such as special financing considerations. Show how the property’s performance differs from projections made at the time of purchase. 

Sharing the purchase price may lead to a higher assessment, but student housing owners can mitigate the amount of the increase with a meaningful purchase price discussion with the assessor. 

Beware incompatible income comparisons 

Properties built and/or operated specifically as student housing projects are often referred to as purpose-built properties. An alternative student housing solution in college areas is conventional, market-rate apartments, also known as student competitive apartments. 

On the surface, purpose-built and student competitive projects are similar in use and function. When an assessor is using an income approach to value, however, the properties’ differences become significant. 

Competitive properties usually include more studio and one- or two-bedroom apartments, while purpose-built properties have more three- and four-bedroom units. Competitive complexes rent by the apartment, while purpose-built properties rent by the bed. Rental rates and amenities also can differ dramatically between the two property types. 

In an income approach, assessors typically use market-driven rent, vacancy, and expense factors to arrive at a net operating income figure that is then capitalized using a market-driven capitalization rate. The most common mistake assessors make using this approach is applying competitive market data in their analysis rather than purpose-built market factors. 

Student housing owners should be quick to point out the differences between these two property types: For example, competitive apartments are valued per square foot, while purpose-built housing is valued by unit or bed. 

Owners should emphasize occupancy fluctuation differences between competitive apartments and a purpose-built property, which may have low occupancy during the summer. Also point out the influence of the on-campus housing supply on the performance of an off-campus, purpose-built project. 

Finally, be mindful of how a property’s distance from campus affects rental rates. There is typically a direct correlation between proximity to campus and higher rent levels, leasing velocity and occupancy for purpose-built properties. The correlation isn’t as strong at student competitive properties. 

Even if an assessor is using appropriate data from comparable purpose-built properties, owners should challenge the market factors in the assessor’s analysis with data taken directly from the property’s current and previous year’s operating statements, if such data is in the property owner’s favor. An operating statement can help distinguish the owner’s property from projects that lead to higher assessments. Pointing out specific income and expense items can show trends in rental rates, occupancy and expenses that differ from the market trends alleged by the assessor. 

Even in a strong market, student housing owners should constantly monitor their property tax assessments, and have the courage to combat assessments derived from sales or income data. 

Gilbert Davila is a partner in the Austin law firm of Popp Hutcheson PLLC, which focuses its practice on property tax disputes and is the Texas member of American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Mr. Davila can be reached at

Craig Meddin: Why You Should Care About Online Shopping

The e-commerce revolution has changed consumers’ shopping patterns and generated downstream repercussions that business leaders like Steve Jobs, Jeff Bezos and Warren Buffett were out in front of early on. These e-commerce icons, of course, are early adopters of new technology who made fortunes by anticipating the opportunities associated with e-commerce. Back in 1996, Steve Jobs said, “The heart of the web will be commerce.” Warren Buffett sees online retailing as a massive growth opportunity, as evidenced by Berkshire’s recent acquisition of online retailer, Oriental Trading. Jeff Bezos, a founding father of e-commerce said this: “Your margin is my opportunity,” meaning his goals are to flood the marketplace with as many online purchases as possible (increasing package deliveries as a ripple effect). Is it working? In the United States, of all e-commerce growth in 2014 and 2015, Amazon accounted for 60 percent.

Jet McGuire, Norman Eastwood: Baylor University — Building Up, Not Out

Walkability is the latest industry term entrenching itself into the lexicon of nearly every student housing investor and developer. Not only is it changing vocabulary, it is clearly a market driver. Add to the mix, the increasing desire for luxury, purpose-built communities geared towards students. The net result of the two trends is altering both Waco’s student housing market and skyline, as developers shift their views from the ground to the sky to meet the latest demands of the student population.

Alexis Krisay: Summer Leasing Necessity — Selfie Tours

Engaging your prospects through Selfie Tours is this summer’s hidden gem to ensure that your property stays top of mind and is the first place they think of when making their last minute housing decision. While students may be out of the market for the summer holiday, they are not out of reach.

Tactics like selfie tours and digital tours of your property allow prospects — and their parents — to see the personality of your property through the leasing consultants’ eyes and enable them to feel like they are there walking through the property. These videos can then also be repurposed for social content and boosted on Facebook to target the top infill cities that your property’s prospects live in.

Alexis Jones: New Federal Rules Mark Cultural Shift for Many Companies by Redefining Limits for Exempt, Nonexempt Employees

Changes to the Fair Labor Standards Act (FLSA), which governs federal minimum wage and overtime pay requirements, will require many student housing management companies to re-examine the classification, pay and job responsibilities of property-level employees in order to comply with the new rules by the time they take effect on Dec. 1.

FLSA was created in 1938 to define standards for the number of hours worked in a workweek and overtime pay, requiring most employees in the United States be paid overtime pay for all hours worked over 40 hours in a workweek. That said, FLSA provides exemptions from overtime pay for those who fit specific categories defined by their job duties, not their job titles. To qualify for exemption, employees must meet two tests: a duties test and a wage test.  

Joseph DeBuck: Here’s An Idea That Benefits Both Owners/Operators and Residents

The student housing industry is going strong. The bed count has grown by leaps and bounds and the quality of the assets that offer those beds has increased. Great locations, nicer accommodations, more amenities; it just keeps getting better for student residents.

While this eruption of innovation and progressive thinking continues to evolve, owners/operators/management companies all work toward the same fundamental goal — fill their beds and maximize profit. But “easier said than done” doesn’t begin to describe the challenges student housing companies face. Generally, the time-honored practice to fill beds is to entice the prospective resident with some sort of tangible benefit in the form of an incentive. Typically, the owner/operator/management companies absorb the cost of the incentive, citing the age-old business axiom, “it takes money to make money.”

Michael R. Ytterberg: Serving the Graduate Student Market with Market Rate Design

There’s no question that urban areas are experiencing an influx of millennials who seek an experience rich lifestyle. Upon moving to a new city, matriculating graduate students enter law, business, medical or other professional programs a bit older, with years of work experience and savings, or with parents who are willing to support them. Their tastes are a bit more refined, but they still want to find living arrangements that are not isolating and that have a strong sense of community, like what they experienced as undergraduates.

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