Student Housing Business

JUL-AUG 2018

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

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THE SHB INTERVIE W July/August 2018 StudentHousingBusiness.com 34 done today tend to take longer to assemble and entitle; require more up front predevelopment capital to be at risk; and have more costly entitlements, design, and con- struction budgets. Also, the new capital entrants want to partner with someone who is very experi- enced and can effectively deploy a significant amount of money in a relatively short period of time. From a development capital standpoint, I can speak to our experience as I believe most of our competitors are capitalized some- what differently. We first teamed up with our international partner about four years ago, and they just re-upped their allocation to about $1 billion of equity with us. They have been a fantastic partner and we hope to continue growing our relationship with them. We also have three other domestic capital partners that we do a good bit of work with. Overall, we have been extremely fortunate to have such a great group of partners. They have all been instrumental in our growth. Our capital partners today bring a different approach than our partners in the past. The type of capital they are bringing to the sector is not unlike that which other asset classes have seen, though. They are accustomed to participating in predevelopment expenses, sharing in guarantees and/or participating in cost over- runs — while still providing simi- lar fees and promote structures to our legacy capital partners. The new capital is also able to be more creative in terms of its duration in the investment. That enables us to not be so reliant on building and quickly selling. We now have the ability to hold assets longer and be more strategic. We oper- ate a roughly 25,000-bed portfo- lio today — about $2.5 billion of which we own largely with our partners. By 2021, we currently plan to own $5 billion to $6 billion worth of assets in our portfolio. I sense that many of the legacy development capital providers in the space are frustrated at their inability to deploy capital like they used to, but like us, they need to evolve and meet the mar- ket. The terms the new entrants are offering are relatively cus- tomary in other more mature real estate asset classes. SHB: That is a real switch in strat- egy; you were known for building and selling for many years. Over the past few years, Landmark has begun to hold assets for longer periods of time. Why did you change? Rogers: We want to create stabil- ity and long-term value for our company, our employees, and our partners. I truly believe that we've built the industry's best team, and we want to keep the team in place regardless of whether mer- chant development makes sense. Having a large, low-levered stable portfolio will enable us to keep the team in place in both good times and bad; and enable us to take advantage of opportunities if and when the bad times come. While I personally don't think this will happen anytime soon, there's a risk to the merchant develop- ment model if interest rates and cap rates rise rapidly in the face

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