Chicago — On June 16 at the InterFace Student Housing Conference held at the Hyatt Regency Chicago, a panel of industry experts moderated by Dorothy Jackman, vice president investments & senior director in Marcus & Millichap’s National Multi Housing Group, gave attendees a mid-year update on the status of the nation’s student-housing sector.
Commenting on leasing performance, Miles Orth, executive vice president & COO of Philadelphia-based Campus Apartments, reported that his company’s portfolio, which is about 6 points ahead of last year, had reached a stabilized occupancy level of 97 percent in September 2009. Orth added that conventional student-housing offerings are performing better than purpose-built product due to its closer-in location. Scott Duckett, a senior vice president at Campus Advantage, reported that his company is about 3500 leases or 15 percent ahead of the same time last year. “We’re seeing a more rapid lease up across all property types at all price levels in the rent structure, so it’s definitely a stronger year.” Despite reporting that his company’s holdings are 5 occupancy points ahead of last year, Peter Stelian, managing principal of Blue Vista Capital Management, sounded a note of caution.
“One of the things I’m genuinely concerned about is that, while people sort of feel a little better, the truth is when you get out in a large portfolio in a lot of different communities, there are a lot of people really having problems paying $5,000 to $6,000 per year for rent, especially in transitional schools that are moving from more community colleges to residential campuses. You’re seeing backward flow, people going back home — dropping out of schools or parents who aren’t willing to pay for school any longer.”
Focusing on financials, Duckett stated that 65 percent loan to value is the norm in the student-housing market, and that most investors are looking for a 9 percent yield, although 8.5 percent is probably more reasonable. “As for the structure of the new development deals, the personal guarantees have gone up,” he said. “That seems to be the biggest hang-up with any of the groups that we talk to, whether it’s a high net worth individual or a fund, is that the banks want real liquid assets put against the loan.”
Stelian voiced an investment trend he is seeing currently in the student-housing market: more people gravitating away from funds toward direct investing. “People want more control, they want more influence. They want to move away from investing in closed-in vehicles where they lose all control of the money.”