Student Housing Business

JAN-FEB 2017

Student Housing Business is the voice of the student housing industry.

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INVESTMENT SALES UPDATE January/February 2017 StudentHousingBusiness.com 42 Investment Sales Off to a Strong Start in 2017 With some properties and portfolios already on the market, student housing investment sales are off to a strong start in 2017, even considering 2016 was a record year for sales. By Randall Shearin S Student housing had its largest investment year ever in 2016, led by a series of portfo- lio acquisitions from large owners who are expanding in the space with the backing of institutional and private capital. Even without those portfolio sales — which include The Scion Group's acquisition of the University House Communities portfolio and Campus Advantage/Saban Real Estate's buy of 19 properties from American Campus Commu- nities, as well as Harrison Street's acquisi- tion of the Campus Crest portfolio — student housing still had a big year in 2016. "Total sales volume for 2016 approached $9 billion, which was almost 60 percent over 2015, which was the previous record year," says Kevin Larimer, managing director of stu- dent housing at Berkadia. "Taking out the large portfolio sales from 2016 and 2015, 2016 would still be a record year for sales." By comparison, 2015 saw $5.6 billion in sales in the sector. For 2017, investment sales brokers predict a year more on par with 2015. But many report that January is off to a fast start, with listings already in the market. "We're starting out 2017 with a bang," says Jacklyn Fitts, director of student housing for CBRE Capital Markets. "Typically, this is the quiet time of year — preleasing hasn't been finalized. But we already have a portfolio of four assets on the market, as well as a few core deals on the market. We also have 11 deals that we will be bringing to the market by the end of January." Looking Back Many of the brokerages that SHB inter- viewed for this article reported that 2016 was their best year ever in the student housing space, with all reporting numbers approach- ing $1 billion — and some reporting mul- tiple billions — in sales for the year. Cap rates continued to compress in the space, with many brokerages reporting 5.9 percent as the magic number for stabilized proper- ties, though sought after properties in high demand markets saw cap rates lower than 5 percent throughout the year. Interest in the sector is primarily coming from two parties: larger buyers and institu- tional buyers who are seeking core and stabi- lized assets; and value-add buyers who look to buy low, invest in property upgrades, and raise the value of assets. New construction and core properties that are close to campus top the list for most investors. "Cap rates on these asset types have com- pressed to lower levels than convention- al multifamily," says Ryan Lang, executive managing director with ARA Newmark. "There are now buyers seeking more oppor- tunistic purchases that are non-pedestrian and offer significant yield upside in markets with strong supply/demand fundamentals. I expect we will see more buyers look creatively at potential purchases outside the pedestrian- to-campus realm given the significant yield disparity." Indeed, many brokers reported that they saw cap rates move the most during 2016 on value-add properties, as the number of buyers for these in-demand properties has increased dramatically. And the crown jewel and also most elusive of deals seems to be value-add that is also close to campus. "Value-add with pedestrian-to-campus is one of the hottest property types in the sec- tor," says Fitts. Who's Buying Fueled by institutional capital, many well- known operators are in the market actively seeking acquisitions. Many institutional capi- tal investors have realized they can't effi- ciently enter the market without ties to an established player in the sector, and teaming up has been the key to successful transac- tions for many. The industry saw that when GIC and CPPIB's partnership with The Scion Group acquired University House Communi- ties, and again when Saban Real Estate part- nered with Campus Advantage to acquire a 19-asset portfolio from American Campus Communities. Partnerships also take down less-celebrated deals that may not generate big headlines. The key to being able to close deals in a heated market, say investment sales executives? Track record. "The most successful groups at winning bids are the buyers with the most credibility and track record," says Larimer. "Groups who are finding it harder to compete regardless of their pricing are firms that do not close at their contracted price. With the abundance of capital in the marketplace, sellers and their advisors are not showing tolerance for groups that have adjusted their purchase price during due diligence on other historical transactions. Groups that are engaged, asking the right questions and conduct a high level of due dili- gence before submitting their offers have the inside track." Part of that, say brokers, is a complete understanding of the off-campus student housing asset class, as well as a thorough knowledge of the particular market where an asset is located. Additionally, sellers are " The most successful groups at winning bids are the buyers with the most credibility and track record. — Kevin Larimer, Managing Director of Student Housing at Berkadia

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