Is Student Housing Heading Into a Slump?

by: Christine Blank

Student housing is taking a hit in 2017, in terms of big investment deals.

While 2016 was a phenomenal year for the sector, with $10 billion in student housing investment, many analysts and investors see 2017 as a “sophomore” year, leading to a temporary slump.

There was a 43.7 percent year-over-year decline in deal flow as of May, 2017, according to transaction volume tracked by Real Capital Analytics, National Real Estate Investor recently reported.

The flood of capital to the sector is partially to blame, according to the article. “There’s just been a massive amount of money flowing into the space and the top investors are all doing what they can to make a splash,” said Marc Lifshin, co-founder and managing partner of Core Spaces. “There are more groups looking to invest than there are developers and operators with available real estate, so the next 12 months should be very interesting, as the hardest thing for these institutional investors to do is find the right product with the right operator.”

While large institutional investors may currently be absent from the market, it is not like student housing is going anywhere.

“Even absent any large portfolio transactions, investment sales volume in the $4 to $5 billion range will still be a banner year for student housing,” Frank Pierce, president and CEO of San Diego-based Pierce Education Properties, told National Real Estate Investor.

“There is a healthy volume of value-add opportunities from operational turnarounds, distressed sellers and acquisition rehab opportunities. Over 62 percent of the purpose-built inventory in the top 175 markets as tracked by Axiometrics was built in 2010 or earlier. That’s 433,610 beds, and most are ripe for interior renovations,” Pierce added.

In addition, student housing is experiencing more professional ownership and management.

“We’ve seen significant growth in pro-managed, purpose-built student housing in terms of defining it as a new asset class,” said Dave Borsos, vice president of student housing for the Washington, D.C.-based National Multifamily Housing Council (NMHC), in the article. “Recession resiliency is one of the reasons why and one of the unique characteristics that makes student housing different from apartments. Another big difference is operationally. The firms that understand those differences and do well have drawn a lot of outside investment interest. Anecdotally, we’re hearing that a third of investors in 2016 were brand new to student housing.”

 

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