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 36 of elevated construction costs. If that happens, rents may take a while to catch up, and until they do, development might not make as much sense for a while. With our new model, we are much better able to weather such a storm than pure merchant developers. SHB: Did you have educate your capital inves- tors on student housing? Rogers: Most of our capital partners had a pretty good big picture understanding of the space before partnering with us. We have had to spend a decent amount of time educating some of them on the nuances, though — par- ticularly those partners with little to no previ- ous student housing experience. That said, our partners put a lot of trust in us and we have an obligation to responsibly manage their capital. We've never lost money for our partners and have consistently generated strong long-term returns. I am extremely proud of our track record. SHB: With all the projects you have going on, you have a wide-angle look at the space from development to leasing and operations. What is your take on the state of the student housing market right now? Rogers: Overall, supply and demand are in good shape. Nationwide, there should be about 45,000 beds delivered this fall, which is a very manageable level and well below the delivery levels from a few years ago. We are optimistic on the sector and are seeing more attractive opportunities than ever. Rising construction costs and the difficulty of finding skilled, reli- able talent are currently our biggest challenges. The recent movement in cap rates in the face of rising interest rates has been very positive for the sector. Right now, we are seeing core student housing deals trading with cap rates in the low 4 percent range. That's a significant shift in pricing from a couple of years ago — despite the fact that interest rates have risen. From the asset level, we are having one of our better leasing years. About two-thirds of our portfolio is well into the high 90 percent preleasing range, and if you exclude College Station, we should end up right around 97 percent occupied for fall. There are some mar- kets, though, like College Station, Lubbock, and Oxford, Mississippi, where you have seen overbuilding. The same is likely to happen in Tempe, Arizona, over the next couple of years. There is a lot of new supply hitting the market in a short period of time at very similar price points. Like Texas A&M, though, enrollment at Arizona State is continuing to grow, and the picture should improve over time. SHB: Is there too much product coming in at the high end of the market? Rogers: This is the case in a few markets, but this is certainly not a widespread issue. We actually believe that well-designed high-end projects currently offer the most attractive risk adjusted returns. We are seeing our proper- ties with the highest rents being some of the best performers in our portfolio. Properties like The Mark at Athens, Stonefire at Berkeley, and The Metropolitan at State College all saw significant year-over-year rent growth while all being more than 99 percent preleased. The Standard at Gainesville, a 1,200-bed mixed-use development, has been occupied at 100 percent every year since it opened, with rent grown north of 4 percent. As a developer today, you pretty much have to build to the upper-end of the market given the elevated level of construc- tion and land costs — particularly for urban infill deals. In our cottage projects, however, we are able to deliver a high-quality product with lots of square footage while often being $100 to $200 per month per bed lower than the high-end, new urban product. To deal with the affordability issue in our urban infill projects, we have tried to offer multiple price points and a diversified unit mix, so we are not trying to capture one little sliver of the overall univer- sity population. SHB: Since you are developing a lot, what are you seeing in terms of architecture, design and amenity trends? Rogers: The rising cost of construction makes building large and elaborate amenity spaces more challenging today. While we still strong- ly believe that our amenity packages provide product differentiation, we are more thought- ful and strategic about the amenities we're building today. We are not dedicating as much Landmark is underway with the The Standard at Tallahassee near Florida State University.

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