Columbus, Ohio — RED CAPITAL GROUP researches investment strategies.
Columbus, Ohio — Attending college will remain an attractive option for most, but demographic changes and a recovering economy could recalibrate the student housing market.
These are key findings in RED CAPITAL GROUP's report, “Recent Developments in the Student Housing Finance and Investment Markets.”
The FHA student, senior and multifamily lender first analyzed the student housing market four years ago, when lead researchers Dan Hogan and Joseph Mandeville say it was still viewed as something of a novelty within the multifamily sphere. Since then, student housing is being taken more seriously.
“Our feeling is the sector is very interesting to investors, but there hasn't been a great deal of research work done yet,” Hogan said.
Hogan and Mandeville gathered data from several sources, including the U.S. Census Bureau, The National Center for Education Statistics, Fannie and Freddie student loan programs and 10 large state university markets.
The report concludes that even though a smaller generation - the children of Generation X - will be approaching the 18- to 24-year-old age range in the next five to seven years, four-year-degree fall enrollment will continue to rise as it has every year since 1969.
However, high enrollment figures may taper off at secondary and tertiary colleges and universities as the economy builds strength, particularly if there is an uptick in entry-level labor opportunities in fields such as manufacturing.
“We think the risks are going to be greatest for declining enrollment in markets where we have secondary public schools, and generally where there are schools that are less selective,” Hogan said. “So your marginal student who isn't necessarily targeting a career that requires strong academic skills, they're the ones who'll be the most likely to make the decision not to attend college if the economy improves.
“Right now, you've got a situation in which even the less academically inclined students don't have much incentive not to go to college. There aren't any great job opportunities waiting for them, so they prefer to spend the four years between 18 and 22 gaining job skills.”
The report indicated that in addition to large public state universities, ivy league schools should remain sought-after choices for college degrees, even if they far out-price state-school tuition. And pursuing higher education in the United States will continue to be a draw for an increasing number of international students.
Declining state government funding levels will continue through 2013 or longer, even as the economy improves, according to the report. This trend should shape up to make the joint public-private partnership model for on-campus housing construction ventures even more appealing to university officials who will rely on private development in order to focus on funneling resources into growing academics.
Hogan said he was interested to learn cap rates were higher by up to 150 basis points in the student housing sector than they were in multifamily.
“That tells us that if you buy in this sector, returns are potentially higher than they are in multifamily. Given that cap rates in the multifamily sector have gotten so low, and asset prices have gotten correspondingly high, a lot of investors are looking for alternatives to achieve better returns. The data suggest better returns can be achieved in the student housing sector because of the higher initial yields.”
For a complete copy of the report, visit http://www.redcapitalgroup.com/Request/GetReport.aspx?reportname=RCH-SR-003-2011_StudentHousing.pdf
- Lynn Peisner