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Brian Nelson: No Slowdown in Student Housing

The COVID-19 tsunami devastated industries all over the country and around the world, grinding many businesses to a halt. Before the pandemic, the commercial real estate industry was riding high with a 10-year run dating back to the Great Recession with few signs of slowing in a roaring economy. 

If one thing was made clear during the pandemic, it was that life in the U.S. will never be the same. New phrases came to light that were never heard before but are now household terms — social distancing, shelter-in-place and flattening the curve. 

College enrollment historically has had minimal if any correlation to economic or real estate cycles, even in 2008 during the Great Recession. If anything, college enrollment has increased during recessionary periods and has demonstrated a steady, consistent incline year-after-year, decade-after-decade dating back to the Vietnam War era. 

There have been no signs of slowing, as the value of a college education is proven through substantially higher incomes and a lessened unemployment risk during economic downcycles. As a result, student housing is viewed as a terrific real estate option. It is one that can potentially marry the historical stability of a university and the inherent limited space close to campus with the traditional benefits found in commercial real estate, like income, depreciation, long-term appreciation and brick-and-mortar value. 

For college students, living at home with mom and dad after leaving school during the COVID-19 pandemic has been a challenging experience. Going to college in-person and having that unique rite of passage has never been more appreciated than it has this year. Students are anxious to return to campus — some have even threatened to sue universities if they don’t open their doors in the fall.

Universities have taken notice and are equally ready to bring students back to campus. Without physical classrooms, many schools stand to lose tens of millions of dollars in revenue. Rather than stonewall students’ desires to get back to the classroom, university officials have taken the challenge of coming up with innovative solutions to socially distance their students and faculty, and mitigate spread during the fall semester. 

In early summer, universities began announcing plans to open their campuses in the fall. This set off a domino effect of other schools following suit by implementing guidelines to keep students and faculty safe with methods including regular COVID-19 and antibody testing, hybrid classes with some online coursework, mask requirements, social distancing and private rather than shared rooms in residence halls.

In an abundance of caution, some universities are beginning their academic calendar two to three weeks ahead of schedule — around mid-August — with no breaks until Thanksgiving. After Thanksgiving, rather than risk viral spread as students return from home for the last few weeks of December, these universities are pivoting to exclusively online classes throughout the month of December. 

With concerns over liability and contributing to potential spread, many universities are re-thinking residence hall room spacing. Many have concluded that shared units may be conducive to viral spread, bringing to light yet another new term — de-densification. 

As a result, we’re seeing several administrators adjusting policies to restrict on-campus housing to one student per-room. So where do the remainder of these students go? Universities have signaled that they might be looking to lease space from off-campus providers, potentially escalating demand for beds by the thousands. There are two reasons why we’re even more encouraged about student housing at this time:

Students want to come back to campus rather than just taking online courses; and

Schools are planning to re-open for the fall knowing that it could cause financial devastation to keep campuses closed, including the loss of football revenue, social activities and potential lawsuits from parents/students for not getting interpersonal education.

Overall, while student housing properties have had some dip in collections since the pandemic, fall enrollment plans, pre-leasing numbers and the potential for university master leases could shape this year up to be one of the strongest ever for private student housing. 

Following its strong performance during the last recession, a strong rebound following the pandemic could continue to distinguish student housing as a unique model with sustainable advantages that can help bolster strong performance with limited correlation to external factors. 

— Brian Nelson, President and Founder, NB Private Capital

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