Category: Student Housing

Remote Learning Sends Rent Prices Down in College Towns

Rent prices in college towns have fallen this summer as colleges and universities across the country have opted for remote learning during the coronavirus pandemic, according to a Zillow analysis.

“The drop throughout college areas stands out even in a rental market that has softened across the board since February with rent-price growth slowing and landlords offering more concessions,” Zillow says in a release.

Data from The Chronicle of Higher Education and Davidson College show 44 percent of U.S. colleges and universities are operating fully or primarily online for the fall semester, while only 27 percent are offering classes fully or primarily in person.

A new Zillow analysis shows that reduced demand in this largely remote environment is having a noticeable impact on rents in ZIP codes in which at least 20 percent of the population is college students, who make up about eight percent of the U.S. rental market in a typical year.

Softening college towns rental market

“The softening rental market across the country is starker in college neighborhoods as pandemic-mandated campus closures and opportunities to complete courses online have provided motivation for young people to move back home,” said Zillow senior economist Cheryl Young in the release.

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Campus Outbreaks Have Muddied the Picture for Student Housing

Operators are experiencing big variances in occupancy rates for the fall semester.

Off-campus student housing operators have endured a rocky month as many universities around the country that brought students back for the fall semester suffered immediate COVID-19 outbreaks. That caused some schools to send students back home. It also led to other schools watching the carnage at the early openers to change their own plans for in-person classes.

One example of that was Michigan State University, which at the last minute scrapped plans to bring students back and instead has opted for online instruction.

“Effective immediately, we are asking undergraduate students who planned to live in our residence halls this fall to stay home and continue their education with Michigan State University remotely,” said Michigan State president Samuel Stanley in an August 18 letter to students.

So once again, the novel coronavirus is tearing up plans for the fall 2020 semester. Michigan State joins colleges like the schools in the University of California system, which had already announced that they would not hold class in person.

According to the latest tracking by the Chronicle of Higher Education and Davidson College’s College Crisis Initiative, just 2.3 percent of the 3,000 higher education institutions being tracked are fully in person for the fall semester. Another 19 percent are primarily in person, 16 percent are taking a hybrid approach, 27 percent are conducting classes primarily online and 6 percent are fully online. In addition, 24 percent of the institutions were still finalizing their plans. Those numbers have moved a lot from just a month ago.

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Deserted College Dorms Sow Trouble for $14 Billion in Muni Bonds

More than $14 billion in municipal bonds were sold to finance student housing projects.

(Bloomberg)—Less than a third of the rooms in a new $90 million dorm set to open this month at the California College of the Arts in San Francisco are taken. An opulent apartment tower financed by $228 million in municipal bonds at Florida International University, with a rooftop pool and gym, hasn’t yet met tenant projections.

It’s a scene playing out on campuses across the U.S. as families skip the usual college move-in frenzy, leaving thousands of dorm rooms empty. That will cascade into the more than $14 billion of municipal bonds sold for student housing, particularly securities sold by private companies relying on rental and leasing revenue to pay bondholders. It’s one of the first places where investors who bet on higher education can expect trouble because of the pandemic.

Colleges for years have been turning to private companies for student housing to shed costs and lure students with state-of-the-art facilities. The companies borrowed the money for construction from municipal bond investors, with a promise to repay with rent and lease revenue. But with schools switching to virtual learning or limiting the number of students who can live on campus, the bonds that are often already risky are facing a major threat.

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How Will Student Housing Operators Fare This Fall? The Answer Depends on Which Universities They Serve

Owners in markets where universities are reopening in person are seeing a surge in demand as students are pushed into off-campus housing.

Student housing operators are optimistic about demand in markets where universities will hold face-to-face classes this fall, but have a gloomy outlook for markets where universities will shift entirely online.

Uncertainty looms over off-campus student housing operators in markets where universities have elected to go entirely virtual, says Sean Baird, director of the national student housing group with real estate services firm Colliers International. They do not know whether students will honor the leases they signed or what their final occupancy will look like for the upcoming academic year. They are looking at the upcoming school year through unfavorable lenses and expecting high vacancies.

For student housing owners in markets where universities are reopening in person, there is a great amount of optimism, says Baird. A number of these universities are re-evaluating their on-campus housing strategies by eliminating double, triple, and quadruple occupancy bedrooms, while also taking entire on-campus dorms off-line in order to use as housing for COVID-19 positive students to quarantine. That has created a surge in demand as more students are pushed into the off-campus housing market.

Nationally, the student housing pre-leasing level for the fall 2020 semester stood at 74.9 percent as of June 2020, according to Carl Whitaker, market analyst with RealPage Inc., a provider of property management software and services. That was about 500 basis points below the June 2019 reading. According to data provider Yardi Matrix, student housing pre-leasing level through June 2020 was 2.9 percent below last year’s levels, according to Doug Ressler, manager of business intelligence with the company.

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Student Housing Owners Look Forward to the Fall Semester

Despite some campuses announcing plans for fully online classes in the fall, demand for off campus student housing remains robust.

When the new academic year begins in later this summer, with a few exceptions, most of the 482,000 students at the 23 campuses that comprise the California State University (CSU) system will be learning remotely. That’s the highest profile example in the current debate among universities as to how handle the fall semester.

CSU Chancellor Timothy P. White’s announcement on May 12 sent shock waves through the student housing business, which so far has survived the crisis caused by the coronavirus without major loses.

But overall, the CSU system seems to be an exception, with many other university systems announcing plans for the full or partial return of students. According to data compiled from 850 universities by the Chronicle of Higher Education, two-thirds of American universities have announced plans for students to return.

“By and large, most schools appear to be on track to re-open for Fall 2020,” says Carl Whitaker, senior manager of market analytics for RealPage, Inc.

Only 7 percent are planning online. Another 8 percent are proposing a hybrid model, 9 percent are waiting to decide and 10 percent are “considering a range of scenarios.”

“Online instruction [in the spring] did not go super smoothly,” says Will Baker, senior managing director of Walker & Dunlop. “It has not been popular.”

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Student Housing Properties Are Beginning to See Fallout from Overdevelopment

There was a wide discrepancy in the performance of student housing properties in the fall of 2019.

The performance of student housing properties in the lease-up for the fall 2019 semester varied more widely than usual, according to industry sources, including Carl Whitaker, who manages the market analytics team for RealPage Inc., a provider of property management software and services. Some student housing assets performed very well, while others struggled.

Developers continue to open tens of thousands of new student housing beds every year. But it is getting increasingly difficult for them to get the numbers just right—especially since so many of the new student housing properties are so expensive that only a fraction of students can afford them.

“Much of the new supply in recent years has been at a significant rent premium to existing properties,” says William Talbot, executive vice president and chief investment officer at American Campus Communities, a student housing REIT. “The new developments have generally leased up well in their inaugural year, despite the higher rents, but frequently struggle to maintain those rents.”

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Housing for Today’s Students

Developers, and students, opting for more practical approaches when it comes to housing.

The Standard at Flagstaff in Flagstaff, Ariz., is just one of nine student housing properties being delivered this month by the Athens, Ga.-based Landmark Properties.
Top developers are scrambling to build or renovate student housing properties that include the new top amenity students want.

“What’s different for us in 2019 is the inclusion of more dedicated study areas,” says J.J. Smith, president of CA Student Living, based in Chicago. “Study-oriented spaces are trending up while party and game lounges are trending down.”

After years of building exorbitant features like massive swimming pools with cabana service and elaborate party spaces, developers are focusing more on providing places where students study and work in groups, in addition to fitness and wellness spaces.

Others top features include proximity to campus—students continue to be very interested in living within walking distance of the school they attend … though they will live farther away if the price is right. Students also are interested in housing designed to use less energy and water, according to leading developers.

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CRE Investors Are Showing a Growing Appetite for Higher-Yielding Alternative Assets

Sectors such as self-storage and student housing appear more attractive as yields for core real estate drop.

It wasn’t that long ago that alternative properties didn’t get much respect, but as yields compress in core property sectors, alternatives have caught the eye of investors, and 2019 should continue that trend.

“For many years, non-traditional real estate was not fully appreciated,” says Tyler Blue, vice president of the advisory and consulting arm of research firm Green Street Advisors. But alternative sectors have outperformed expectations in recent years, and investors have noticed.

“Once the broader real estate investment community caught on, more capital flowed in, particularly as the more traditional real estate sectors became fully valued. So, the more progressive investors benefited and the institutions have followed their lead,” Blue says.

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An Insider’s View of the Student Housing Business

Campus Advantage is one of the most active players in the student housing market. Over the last decade, the company has acquired more than $1.5 billion in student housing assets through its partnerships and invested about $525 million in equity through several joint ventures. In addition, Campus Advantage manages more than 60 communities across the country.

The firm’s Michael Orsak, senior vice president of investments, and Josh Greenleaf, vice president of investments, revealed the major trends and challenges in the business. The two also explained what attracts today’s residents and what makes them stay.

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Campus Apartments’ Student Housing Investment Strategy

Campus Apartments, under the leadership of President & Chief Investment Officer Dan Bernstein, is one of the U.S.’s largest providers of on- and off-campus student housing.

Since joining the Philadelphia-based company in 1993 while still in college, Bernstein has risen through the ranks and now oversees Campus Apartments’ investments, operations and asset management groups. During his 25 years, he has created high-profile public-private partnerships and has been involved in more than $2 billion of development and acquisitions.

Bernstein took some time to talk to MHN about his student housing investment strategy.

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