Student Housing Business is the voice of the student housing industry.
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WHAT'S ON MY MIND StudentHousingBusiness.com January/February 2017 77 A New Age Consolidation and longevity demonstrate industry maturity. By Frederick Pierce IV I In my last "What's on My Mind" column in Student Housing Business (September/October 2015), I focused on the industry "coming of age," largely in terms of transparency, profes- sionalism and availability of institutional debt and equity capital. SHB's recently released 7th annual Top 25 survey of student housing own- ers (published in the November/December 2016 issue), when taken together with past Top 25 surveys, complements those observations and documents and reinforces the consolida- tion of ownership in our sector, as well as the longevity and growth of selected leading industry companies. The Top 25 Owners in the sector continue to dominate student housing ownership, with their annual market share of the AXIO 175 Markets 1 ranging from 59 percent to 69 percent and averaging 65 percent in recent years. This shows that as over 261,000 new beds were delivered to the national marketplace since 2010, the majority of that additional supply has either been held by or sold to the Top 25 Owners. The aggregate beds owned by the Top 25 has increased 75 percent since 2010, from 276,412 to 482,684 beds today. The rela- tive market share also affirms that the Top 25 remain the major players in the acquisition of existing student housing assets. (See table below.) However, as the Top 25 Owners dominate the marketplace, the composition and size of that group has changed dramatically since 2010. Only 56 percent (14) of the Top 25 stu- dent housing owners from 2010 remain part of the list today. The minimum beds necessary to rank in the Top 25 has grown 92 percent from 2,766 in 2010 to 5,300 in 2016. Similarly, the number of Top 25 Owners with 10,000- plus beds has dou- bled from eight to 16 and the average number of beds held by the Top 25 Owners has grown 75 percent from 11,056 to 19,307 between 2010 and 2016. The consolida- tion of ownership in the industry is evidenced by the fastest growing companies mea- sured both by per- centage growth since 2010, as well as through the net increase in the bed inventory held by these grow- ing companies. Of the ten fastest growing (percentage-wise) student housing companies who were part of the Top 10 in 2010, 80 per- cent are private student housing companies or developers. (See table on page 78.) The growth comparison by total bed count also shows the continued key role of private companies in student housing and also high- lights some of the new entrants in recent years. The Top 15 fastest growing companies ranked by net increase in beds owned have all grown by more than 7,200 beds over the past seven years or less — that aggregate growth repre- sents a bed increase greater than the total beds owned by 15 of the Top 25 companies in 2010. The majority of these dramatically growing companies have done so through acquisitions, while a little more than a quarter grew largely through development. (See table on page 78.) The increase of institutional capital fun- neled into student housing in recent years has allowed private companies (particularly student housing operators, but also develop- ers and multifamily investment management firms) to grow their marketshare (63 percent in 2010 vs. 71 percent in 2016) amongst the Top 25 as the industry has grown, while the REITs' comparative marketshare has decreased some- what (from 37 percent to 29 percent). A signifi- cant factor in this shift from public to private ownership was Harrison Street's privatization of Campus Crest (whose portfolio represents the majority of HSRE's 9.5 percent market share in the Top 25). When Campus Crest was public, the marketshare of REITs in 2016 was close to its percentage in 2010. While private student housing operating companies have maintained a steady presence in the Top 25 — roughly half of the companies and a mar- ketshare of 45 percent in 2010 and 44 percent in 2016 — their bed ownership has grown by 73 percent, from 123,079 beds to 213,525 beds in 2016. The future market portends continued opportunities for all, but particularly private student housing operating companies. (See table on page 78.) The student housing industry remains ripe for further consolidation of student housing ownership in the future. The continued success of the two public REITs — American Campus Communities (ACC) and EdR — affords them ready access to capital for continued growth through new development and tactical acqui- sitions to maintain significant market share. At the same time, strong growth, investment success and growing human resource capacity amongst the leading private student housing companies is attracting larger equity invest- FREDERICK PIERCE CEO, Pierce Education Properties CATEGORY 2010 2011 2012 2013 2014 2015 2016 TOTAL BEDS - OWNED BY TOP 25 276,412 294,708 321,947 373,877 395,207 383,647 482,684 TOTAL BEDS - AXIO 175 MARKETS 433,610 458,606 496,835 552,342 604,492 647,753 695,498 TOP 25 OWNER % of AXIO 175 64% 64% 65% 68% 65% 59% 69% % GROWTH (BEDS) OF TOP 25 OWNERS -- 6.6% 9.2% 16.1% 5.7% -2.9% 25.8% TOP 25 OWNERS - MINIMUM BEDS TO QUALIFY 2,766 4,000 4,220 5,604 5,060 4,160 5,300 AVERAGE BEDS OWNED BY TOP 25 11,056 11,788 12,878 14,955 15,808 15,346 19,307 Top 25 Student Housing Owners Survey by Student Housing Business Key Benchmarks, 2010 – 2016