Real Capital Analytics
Transaction data show positive signs in several student housing sectors.
Acquisition activity for student housing has returned to near peak levels, with $2.2 billion in volume transacted during 2011.
That total is up 40 percent compared to 2010 and nearly quintuples total sales volume from 2009. While activity in the sector is still 16 percent below its 2005 peak of $2.5 billion in sales volume, progressive increases in quarterly sales volume during 2011 bode well for a robust transaction environment in 2012.
Cap rates for the sector continued their descent from their Q2 2010 peak, reaching 7.1 percent in Q4 2011. While this level of cap rates still represents a healthy discount of 66 bps to the overall apartment sector, cap rates in the student housing sector have fallen approximately 60 bps from the year-ago quarter, which is more than three times the fall in cap rates observed in the overall apartment sector during the same period. Given the long-term norm of student housing trading at yields of approximately 75-100 bps more than the all-apartment average, the movement of this spread is a trend worth watching during 2012.
Given the huge swings in volume and cap rates for student housing, it does not appear that the capital markets were any gentler with this niche than they have been for apartments in general, but the niche has shown its strength as average per-unit pricing held firm, owing to the captive and growing audience of student renters.
Average prices for student housing have stayed relatively constant at $100,000 per unit over the past five years. Over the same period, overall apartment prices dropped from $90,000 per unit to less than $70,000 per unit in mid-2010, and have since risen to more than $75,000 per unit.
The limited pool of capital investing in the student housing sector compared to the overall apartment sector also helps keep pricing stable. However, the small size of the capital pool also means that new capital entering the market can have a big impact.
The biggest story for student housing in 2011 was the shifting investor composition. Institutional fund managers like Kayne Anderson and Harrison Street Real Estate Capital continued to move into the sector in a big way, often teaming up with experienced operators. Institutional players made up 42 percent of buyers of student housing in 2011, up from 29 percent in 2010.
Private investors and cross-border investors each increased their market share by 2 percent compared to last year, capturing 33 percent and 2 percent respectively. These growing investor groups took most of that market share from public REITS, who were buyers in 19 percent of transactions, down from a 30 percent market share in 2010. Users were also less active in 2011, purchasing just 4 percent of student housing properties, down from 11 percent in 2010.
While public REITs purchased just $410 million of student housing in 2011 (12 percent less than in 2010), they are by no means pulling back on investment. Instead of concentrating on purchasing built assets, public REITs are shifting a significant amount of their investment capital to development activities.
According to their most recent SEC filings, Education Realty Trust currently has six active development projects with a total cost of $259 million. American Campus Communities is even more active, with nine projects currently under construction at a total cost of $349 million. This sort of continued investment from industry stalwarts combined with growing investment by new players sets the stage for an active 2012 for the student housing sector.