Student housing has become the latest area of intrigue for investors, as they’re putting up billions of dollars to acquire and develop off-campus residences, The Wall Street Journal reports. Companies like Blackstone Inc. and Brookfield Asset Management Inc. are offering student housing facilities that comprise amenities like game and video rooms, gyms and fast Wi-Fi. Some even have swimming pools.
The interest in student housing comes amid companies’ confidence that it will remain in demand as colleges offer in-class learning again this year. Demand only fell slightly last year even though colleges only offered remote learning due to the COVID-19 pandemic.
“Now that we’ve seen the asset class through a global pandemic, it really shows the resilience,” Christopher Merrill, co-founder and chief executive of Harrison Street told The Wall Street Journal. Merrill’s investment firm is currently the largest student housing private owner.
Blackstone Real Estate Income Trust agreed to pay $784 million for a majority stake in a portfolio that included eight student housing properties in August. The properties had more than 5,000 beds developed and Athens, GA-based Landmark Properties managed them. Jacob Werner, a senior managing director of Blackstone Real Estate, told The Wall Street Journal that preleasing of the portfolio, which is near schools like Florida State University and Georgia Institute of Technology is back to pre-pandemic levels.
Additionally, Brookfield is looking to create a joint venture with student housing developer Scion Group LLC. If successful, the companies would acquire at least $1 billion in student housing properties. Meanwhile, smaller investors have been active in the sector, too. Student housing deal volume increased from $1.68 to billion during the first half of 2020 to $2.52 billion during the first six months of this year, according to JLL.
The appeal of student housing
Investors expressed concern when the COVID-19 pandemic hit the U.S.; there was worry student housing values and profits would fall as schools transitioned to remote learning. Rent collections remained high however even as in-person classes were eliminated. It turned out many students decided to remain in their campus housing during the remote learning period.
“Students showed up,” Al Rabil, chief executive of Kayne Anderson Real Estate, which has developed 50 properties with 34,000 beds in 23 states told The Wall Street Journal. “They said, ‘Who cares if it’s remote learning? The last thing I want to do is stay in the room I lived in since eighth grade.’”
Meanwhile, Kayne Anderson Real Estate is poised to soon close on the sales of new properties it finished in 2020. The properties are near University of Florida’s Gainesville campus and Rutgers University in New Jersey. Both housing units were more than 90% occupied last fall, despite Rutgers only offering remote learning, according to Rabil.
Currently, complexes near larger schools in the U.S. have garnered major investors’ attention. Properties near smaller and less populated colleges did not attract as many funds during the pandemic because the tenants are usually less affluent. Meanwhile, overall enrollment in public, two-year colleges fell almost 2% last fall, according to the National Student Clearinghouse Research Center. Some expect the trend to continue, according to The Wall Street Journal
“I don’t think you would find a lot of people who think the U.S. needs 5,500 universities,” Rabil said.
Student housing at bigger colleges and universities saw some benefit from the pandemic, as it put a damper on new supply—a growing concern in the sector. More than 40,000 beds were added annually on average between 2012 and 2019, almost double the rate from earlier in the decade, per Moody’s investors Service.
Investors’ bet on student housing looks like it might pay off as enrollment trends have been on the positive side at larger schools, despite the arrival of the Delta variant of coronavirus. The enrollment figures could be up in part to the more than 1,000 schools mandating student vaccinations, according to the Chronicle of Higher Education. Investors noted the mandates have improved student housing demand—occupancy is up approximately 3% to 4% over last year and only down about 2% to 3% from 2019, Piper Sandler analyst Alexander Goldfarb.
“That’s pretty darn good given everyone’s fears when you remember back,” Goldfarb told The Wall Street Journal.
Joe Dyton can be reached at email@example.com.