To successfully manage a student housing property, one must start from the assumption that managing it is much different that a traditional multifamily property. In a competitive market, good property management can be the key to success.
A quick conversation starter among a group of college-educated people is to ask them about bad living experiences while in school. You will hear personal experiences, and you will hear of stories that happened to friends and friends of friends. Every college graduate has them.
The most common horror story has to do with bad roommates. Another category is bad neighbors. After hearing stories involving people, you often get into stories about the property itself. Everyone knows of student apartment communities where the grounds were not maintained well, management was absentee or any number of other reasons the community was just not that desirable to tenants.
Times have changed. Students — and their parents — have higher expectations of college housing today. And while it is more difficult to solve problems with people, good management of a student housing property can often determine whether it succeeds or fails.
To successfully manage a student housing property, one must start from the assumption that managing it is much different that a traditional multifamily property.
“The two businesses are not even in the same world,” says Kirk Preiss, president and CFO of The Preiss Company, a Raleigh, North Carolina-based developer, owner and manager of student housing.
To Preiss, the differences start at the leasing of the property. Rather than have leases spread out throughout the year, students all sign leases at roughly the same time and turnover year-to-year is much higher. When it comes to many decisions, including where to live, students rely on their friends’ opinions, so tapping into this is crucial to for a successful marketing campaign.
“You have got to get the buzz out,” Preiss says. “The marketing is totally focused on the campus. By and large, your best marketing people are the students themselves — the residents that are living there.”
Building up the buzz about a community is important, because almost all leasing is done leading up to the fall term. Some managers begin their leasing campaigns as early as October of the previous year to make sure they hit their mark for the following fall. Getting good leasing numbers starts at making sure that as many tenants renew as possible, which usually means offering them the largest concessions — usually reduced rent — for signing early. For new tenants, it is the same: the earlier someone signs a lease, the higher the concessions are. All of this is in an effort to hit full occupancy by the fall.
“If you hit your number in the fall, then you are good for the year. If you miss your number, there is very little opportunity to bring it up to accepted levels until the following fall,” says Jim Short, president and CEO of Houston-based student housing developer and manager Campus Living Villages. He adds that because so little leasing is done at other times of the year, fall occupancy is almost always an indicator of what your levels will be in the spring an summer terms.
Once students move in, the challenge becomes how to keep them happy. Call it a sense of entitlement or being used to a higher standard of living than generations past, but students today simply expect more out of a student housing community. This goes beyond putting swimming pools and clubhouses on the grounds (though that is something they look for, too.)
Preiss likens student housing properties to summer camp, though not in the pejorative sense. Unlike a traditional multifamily property, where not hearing from the property manager is a good thing, students have a more personal relationship with property managers. They come to them to talk about their lives, their successes and their personal problems. Managers will often know their parents as well, for better or worse. Rather than just do the job of an apartment manager, student housing management staff function more like concierge at a hotel or hospitality service on a cruise ship.
“If somebody asked me who do you want to manage [a student housing property,] I would take someone out of hotel management rather than property management,” Preiss says.
This extra care takes time. It also takes staff trained specifically in student housing. Having this experience does command a higher salary and means that managers must handle fewer properties so they can provide more individualized attention, especially when it comes to resident life programs that are becoming more common to student housing communities. This makes having an adequate number of staffers crucial.
“As a property management company, one of the things we pride ourselves on is our ratio of supervisors to the amount of properties they handle,” says Mike McGrath, president and chairman of Houston-based Asset Campus Housing. “It’s typically one of the lowest in the industry.” McGrath, whose company has more than 500 employees, adds that retaining this specialized talent is also crucial, as too much turnover can negatively affect the management of a property.
While the adage goes that student housing is recession-proof, it should probably be tempered to say that student housing is more stable than other asset classes. That being said, the current recession has had its effect on the industry, most prominently from a leasing standpoint.
“What we’re seeing, as a whole, is the markets are down 3 to 4 percentage points. It’s also a little slower of a lease-up than last year across the portfolio,” says Julie Bonnin, COO of Asset Campus Housing.
Short says that his company hit its numbers last fall, but it took until later into the leasing season for this to occur. The reasons for this very much hinged on the uncertainty of the job markets. Families weighed the financial cost of attending a school out of town versus closer to home. Parents, uncertain of their employment future, waited to see if college funds would need to be used as emergency funds instead. All of these circumstances caused managers to go to greater lengths to get beds filled.
“The slowdown in leasing caused an acceleration in concessions,” Short says.
The recession also forced managers to adapt to receiving less income. Mike Peter, president and CEO of Campus Advantage, says that the recession has caused students to stay in school longer and more people come back to school, which has kept his occupancy levels high. But the recession has not helped his company with its bottom line.
“We are seeing that out properties are leasing up soon than they have in the past, but it has not permitted us much in the way of our normal annual increases in rental rates,” Peter says. “In fact, most rental rates have remained relatively flat.”
Cutting services was not an option, either, as any drop in the quality of a community’s amenity package would cause students to go down the road to any number of new communities that did not cut amenities and programs.
“We are providing so many services to the students already that I am not sure what else we can do,” McGrath says. “It’s difficult to provide a reduction in expenses for the students. The only thing you can do is offset and provide more services to them, while still maintaining the cost of the property.” McGrath adds that streamlining management operations and cutting excess wherever possible has become the best way to weather the lower revenue the recession is causing.
Looking into the future, the next evolution of student housing properties is hard to pinpoint, but one thing is for certain: technology will play an increasingly important role. It is now commonplace for properties to have an online presence so students can research a property before visiting. Students also are conducting more of their business online, including signing leases and paying the rent. From a property standpoint, owners have to invest more each year in increasing bandwidth for tenant Internet access.
“The convenience to the student is going to be paramount, and, to them, technology is going to accomplish that,” Bonnin says. “If a company is not keeping up with what students need to make their lives easier, the company is going to fall behind.”
Even though student housing properties are becoming more technology-centered, no amount of technology can replace good management of a property. This is ultimately what will get leases renewed and beds filled. Today’s student housing industry is much more customer-oriented, and good managers realize this.
“[Good management] is about establishing those relationships and making sure the students know they are more than just a rent payment to you,” Peter says. SHB