Not Your Parent’s Dorm Room
The student housing market has changed significantly over the last 15 years. What used to be old dormitory buildings crammed with twenty-somethings, have given way to communal apartments for young students, older professionals and their families, and even seniors. And as the student housing population has changed, so have their needs, wants, and even financial expectations.
“There’s a specialized housing type for every stage of your life and student housing is a big one,” says Rawley Nielsen, the president of investment sales at Colliers International. Having followed the market for more than 15 years he’s the first to denounce older buildings that have been adapted for students later in their lifecycle.
Student Housing Needs To Change
To him, new student housing developments must be purpose-built. Designed and built with their audience in mind. They should have plenty of common rooms for kids, such game rooms and study rooms. “Study rooms?” I ask Mr. Nielsen. I had naively assumed college students studied in their own rooms, but apparently, when you’re sharing a bedroom with a roommate, quiet study space can be fleeting.
I asked Mr. Nielsen about what college students need the most. Is it easy access to school, good transportation, or a grocery store within walking distance? “In our eyes,” he says, “the number one need is proximity to campus. A five-minute walking distance is what we like.”
Other attractive student amenities include barbeque and picnic areas, fitness rooms, basketball courts, bike and car parking, washers and dryers, nice big kitchens, and units with private bedrooms and bathrooms. When there’s a unit with multiple bedrooms, each bedroom will lock individually from the outside, which gives students added security and personal space.
Competing With National Universities
Utah’s student housing market is still evolving. Referring to the University of Utah, Utah State University, Utah Valley University, and Brigham Young University, the market is a little behind some of the other major markets in terms of purpose-built student housing with plenty of amenities, explains Mr. Nielsen.
While the newer projects are catching up, Utah is still slightly behind the curve. Universities in Arizona, Florida, and Texas have been building massive resort-style student housing communities that leave our outdated options in the dust. And that can be a competitive advantage. If you’re a student who’s been accepted to UCLA, Arizona, or Florida, you’re going to look at your housing options. “It’s a competitive tool if you have good student housing to offer,” says Mr. Nielsen.
Designing Developments For Generation Z
Redstone’s management team does everything to control and support the social aspect of its properties. Each complex develops its natural culture, he says. “Our staff try to be nice and fun,” says Grant Collard, the CEO at Redstone Residential, Inc., a fully integrated student housing firm in Provo, Utah that handles investments as well as management.
“When people move out it’s not usually because of the sticks and the bricks but because of the social scene. They’re looking for a different social scene, and one project that’s done that really well is Wolverine Crossing. We have between 15 and 20 resident assistants. They’ll go to Taco Bell, grab a bunch of tacos and help people have a good time. We also have a giant inflatable movie screen and we’ll watch summer movies in the courtyard,” he says.
While proximity to campus is critically important, Mr. Collard said that high-speed internet is “a more desirable amenity than indoor plumbing.” As any student knows, if the internet is bad, it’s horrific. Fortunately, there is a solution. Every two years, properties double their bandwidth to account for more study time and Netflix streaming.
In Mr. Collard’s mind, any modern, purpose-built student housing facility should have a clubhouse, fitness center, and hot tub. We’re looking at Generation Z. That means amenities need to shift from pure leisure to more wellness-focused―things like mediation rooms, yoga studios, and expanded fitness centers.
Ten years ago, movie theatres and game rooms were considered to be hot amenities. “Today’s college student would rather workout than party super hard. Things are actually changing a bit,” says Mr. Collard.
Backlash From The Neighbors
As far as growth in the student housing sector, Mr. Nielsen says Utah is growing substantially with all apartment and housing types. “In Utah, I think it’s going to grow in sophistication. We’re going to see more purpose-built, large student housing complete with all the amenities we discussed. The student population is exploding.”
Utah will inevitably see growth in the student housing sector, but not without pushback from local residents. Palos Verdes is a perfect example. Typically, people don’t want student housing developments in their backyard because they associate them with crazy students, excessive traffic, and raging parties.
“Residents think it’s going to be Animal House-style with students passed out in the bushes. We’re actually seeing a decrease in that sort of behavior,” Mr. Collard says. “These are our kids, not some random delinquents. I think cities, as well as citizens, need to listen to the universities.”
Investing In Student Housing
When I asked Mr. Collard about the elements of a good student apartment from the investor’s perspective, he said: “I’d say the number one determinant when it comes to the success of a student housing project is proximity to campus.
“We have plenty of examples of very small buildings right next to campus with no amenities and they do fantastic because of convenience. As a freshman at BYU, I’d wake up five minutes before class, pull on a hoodie, and head out the door.
“When you’re next to campus, you’re not warming up your car, pulling out of a garage, and looking for a parking spot for 15 or 20 minutes. Obviously, new is everyone’s favorite color and flashy amenities will draw people to a project but that will fade over time.” But while flashy amenities may fade, proximity to campus will not.
The last several deals handled by Mr. Collard broke records for price-per-bed. And the supply situation is still good. “[For] most universities in Utah, we’re seeing greater than 97 percent occupancy.”
Even if multifamily is going up or down, the micro-economy around a university is independent of that, says Mr. Collard. In fact, the student housing market weathered the recession in both 2009 and 2010.
“Student housing was seen as recession-proof or almost countercyclical. Student housing is so dependent on the micro-economy of the university and enrollment. A recession or a depression will probably not affect student housing very much whereas a dip in enrollment will have much stronger effects.
From an investor’s standpoint, there are real perks to investing in student housing. For one, stability. Students are pretty much guaranteed to move in just before the school year and they’re going to stay in place for the duration of that year. Then, there’s the stability of the university. Universities don’t shrink or simply vanish, in this way investments are anchored to a university that has hundreds of years of stability.
Mr. Collard’s advice to investors is to do your due diligence. Understand that if the deal doesn’t have a story or if there’s not something broken about it then the returns are going to be difficult to come by. Get out there and walk the building, he says.
“Is there going to be heavy renovations or construction that will increase rents? It’s very difficult to walk into a slam dunk acquisition these days. There’s going to be some heavy lifting to make those investments work in today’s market. There’s no substitute for getting on site, walking the property and competing properties, and understanding how your property would fit in the local market.”