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Student Housing Gets an A+ for Healthy Capital Flows

by Chris Black, Senior Vice President, KeyBank, November 2017 11.28.2017

Student housing is attracting new and continued attention from the investment community, as the former niche asset class reveals its staying power and potential value in supporting a diversified portfolio. Consistent demand in the outlook for student housing development is driving up investor confidence—and capital flow. With $5 billion in new investments in this sector, 2016 marked the biggest year for student housing yet.

The market forces behind this growing momentum served as a primary theme at Bisnow’s November Annual Student Housing Conference in Austin, Texas. Setting the stage for the day’s discussions was a “fireside chat” with Bill Bayless, CEO of American Campus Communities. Bayless explained that new construction of purpose-driven student housing has fulfilled just 20% of higher-ed enrollment growth since the 1990s. Combined with the need for replacement of aging dorms and apartments both on- and off-campus, he affirmed that in his view, student housing fundamentals are healthy and likely to continue. That positive outlook was reinforced by lenders, developers and University executives throughout the day.

As part of a panel on “New Capital Flow in Student Housing,” I enjoyed a lively discussion with leaders in private equity and student housing management. Together we explored some key student housing trends we’re seeing in the space, including a migration of investors from multifamily to student housing, and a significant new uptick in foreign investment.

Education is valuable in this rising asset class

Historically, most housing investment has focused in large part on traditional multifamily development. However, in recent years, some of those investors have expanded their focus to include other high-yielding specialty housing sectors, including manufactured and student housing. Understanding the distinction between these asset classes is important in multiple ways, from the sheer fact that numbers are based on bed count instead of rent, to the fact that other management strategies are needed.

Therefore, some education for new sponsors is proving essential. For example, investors with experience vetting a conventional multifamily core property might expect the closing process to be fairly straightforward. However, student housing operates differently, so elements like where it is in the cycle, and who is going to manage it, are important to understand and get right. It is also wise to consider the larger picture of the student housing real estate prior to considering sponsorship, given that even a good location and an attractive deal can prove challenging to deliver on if, for example, infrastructure overhauls in the same area will disrupt value.

Global interest grows in U.S. student housing

According to the panel’s moderator, 2016 saw a total of $10.35 billion dollars worth of transactions for multifamily housing, with 25% of those dollars coming from foreign entities making a first time buy in student housing—an increase from a high of only 2% in years past. Fellow panelists attributed this historically unprecedented transaction volume from foreign investors to a number of factors. For one thing, they suggest the U.S. real estate investment environment is seen as relatively stable in general. And within that, student housing is gaining a competitive edge because demand for it is not expected to slow in the near future.

Looking ahead at student housing investment

Overall, institutional investment in student housing is expected to grow in step with the U.S. population of college-bound adults. Higher-ed enrollment is on track to reach 23 million by 2024—14% more than current enrollment, according to the National Center for Educational Statistics. Diverse investors, from the U.S. and abroad alike, might appreciate the relatively predictable cash flow increasingly associated with this fairly stable asset class.

The likelihood for success in the student housing space is boosted by straight talk and insight from senior-level experts. At KeyBank, I am a part of an experienced debt-side solutions team that has delivered more than $56 billion in real estate investment financing, including student housing, in the last decade alone.

To learn more, contact: Chris Black, KeyBank Senior Vice President, at 617-385-6263 or Christopher_Black@keybank.com.

For more insights, visit: key.com/rec or key.com/knowledgecenter



This material is presented for informational purposes only and should not be construed as individual tax or financial advice. KeyBank does not provide legal advice.

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