NMHC 2015 Conference & Exposition: Student Housing Robust, Cap Rates Compressing

Left to right: Rob Bronstein, The Scion Group; David Adelman, Campus Apartments; Bill Bayless, American Campus Communities; Donna Preiss, The Preiss Co.; Al Rabil, Kayne Anderson Real Estate Advisors; Brian Dinerstein, Sterling University Housing; and Randy Churchey, EdR. Left to right: Rob Bronstein, The Scion Group; David Adelman, Campus Apartments; Bill Bayless, American Campus Communities; Donna Preiss, The Preiss Co.; Al Rabil, Kayne Anderson Real Estate Advisors; Brian Dinerstein, Sterling University Housing; and Randy Churchey, EdR.

More than 700 members of the student housing industry gathered in Phoenix at the Waldorf Astoria Arizona Biltmore resort this week for the National Multifamily Housing Council’s 2015 Student Housing Conference & Exposition.

After two days of panels, speakers and question-and-answer sessions, the state of the industry is clear: student housing is expanding in terms of both rental growth and development, and lenders for purpose-built student housing are bullish on the market.

Following an introduction Monday afternoon by NMHC President Doug Bibby, Dorothy Jackman and Andy Nelson, managing director and chief economist of Colliers International, respectively, spoke on the economic landscape for purpose-built student housing. Nelson has concerns for the economic landscape of the industry that include high levels of long-term unemployment, household incomes not increasing over 35 years, and the chance of “black swan events” such as the recent turmoil in the Chinese property markets. He believes that college costs are rising much faster than the consumer price index and incomes. In fact, he says, tuition is growing five times as fast as the CPI, as is other consumer debt. A lot of student debt, however, Nelson says, is in the form of loans taken to attend for-profit institutions, while the number of loans students utilize to attend  larger universities  where purpose-built housing is common remains low. Jackman told the crowded ballroom that cap rates in student housing remain low, as well, registering 6.2 percent at the end of the second quarter, and that there had been more than 130 student housing investments made in 2015 year-to-date. As previously reported by SHB, 2015 is expected to be a record year in investment sales volume and transaction for the sector.

In a panel called “Chasing Equity: Where’s the Money Coming From and How Long Will It Last?” six investment experts provided market outlooks on questions facing the sector. Several of the participants mentioned the flat price on commodities in building, but that labor costs and scarcity had risen markedly. The panel strayed slightly off course, bringing other development concerns into the discussion. Brian Shirken, a principal at Columbus Pacific Properties Inc., said he was troubled by the mandated zoning  some cities have imposed that require retail space to be below student housing  in dense environments. “Deciding what is best in these spaces; that’s what we do,” he said. “These mandates are problematic.” Other participants reflected on the intermixing of young professionals who remain in college markets after graduation and students.

An afternoon keynote address by Bill Bayless, NMHC Student Housing Council Chairman, and president and CEO of American Campus Communities, provided an update on the state of the student housing industry, as well as a surprise lifetime achievement reward to Jim Arbury, Vice President for Student Housing for NMHC who is retiring later this year. Arbury has led student housing efforts at NMHC for the past five years, and has helped to formalize and structure the sector within the multifamily industry. In his speech, Bayless stated that in 2014, $3 billion was traded in the student housing space, and that cap rates were down 47 basis points. According to figures, 43 percent of students graduated with zero debt. Bayless pointed to the strength and resources that the purpose-built student housing industry has created — strong, professional management platforms, reporting and sharing of statistics and clear cut career platforms for young employees — as to why the industry was gaining attention from investors. “We’re doing a lot of things right,” he said.

Tuesday’s opening panel featured seven leaders of several of the largest student housing developers, operators and investors, discussing “Where We Are and Where We’re Headed” in the space. Moderator Peter Katz of IPA Property Advisors called 2015 an “incredible, blistering hot year” and said the industry was operating under sound operating fundamentals. Asked the difference between 2015 and 1995, when purpose-built student housing began in earnest in many minds, Randy Churchey, CEO of EdR, said, “The information flow now, with conferences and research, is so much greater now.” Churchey also credited third-party management platforms as a growth driver in the industry. Through them, institutional investors can participate in the industry without having to concern themselves with property management. David Adelman, president and CEO of Campus Apartments, believes the state of the industry in 2015 relies on the maturation of former mom-and-pop operators that grew substantially and merchant builders who have entered the operations sector. Donna Preiss, founder and CEO of The Preiss Co., praised what the Internet has done for leasing and operations. More than 50 percent of leases for her company’s properties are signed online, while 70 percent of tenants pay their rent online, she cited. Preiss is encouraged by the data she has seen about the state of the industry. “[It] shows we’re in the early innings of this industry,” she said.

All of the operators on the panel reported strong lease-up results for 2015-2016 and all said they had across the board rent increases, some topping more than 3.5 percent when aggregated.

“Purpose-built operators have been able to capture the market like never before,” said Rob Bronstein, president and CEO of The Scion Group. “Who is getting hurt is the mom-and-pop operator. Students and parents see the difference between a strong operator, that is why leasing results are better.”

Bill Bayless also added that the industry is creating stronger properties that are closer to campus. “That’s what students want,” he said, citing Austin, Texas, as a primary example. He says 17,000 student housing beds have been built walkable to the campuses there, and the market is 100 percent absorbed.

According to Al Rabil, managing partner and CEO of Kayne Anderson Real Estate Advisors, less education is necessary now for potential investors than was needed even five years ago, due to how common purpose-built student housing has become. In a lightning round of questions and answers, a majority of the panel agreed portfolio acquisitions will likely increase next year, as will construction costs. Brian Dinerstein, president of Dinerstein Companies/Sterling University Housing, said despite concerns about construction costs, “I don’t see anything but sunshine.”

An inaugural event Tuesday afternoon, the NMHC Student Housing DealTank, allowed student housing developers to pitch their deals to a panel of industry experts, reminiscent of the popular ABC show Shark Tank. Each of the five judges verbally gave a yes or no as to whether they would want to have further discussions with the developer on their projects.

The conference concludes today with several more panels on industry trends.

— Scott Reid

More News