Student Housing Business

SEP-OCT 2018

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

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THE SHB INTERVIE W September/October 2018 StudentHousingBusiness.com 36 for the worth of the investment. From that perspective, they were great stewards of capital. Greystar has a great reputation; they are great people. I don't think it is as big of a deal as people think. The only thing it does do is create the space for another public company in the sector. I think the markets would receive that very well. SHB: What are your thoughts on another public company for the industry? Adelman: Campus Apartments will not go public, if that is what you are asking. For us, we don't want to sell the assets we have into the public market. However, I think there are other companies in the industry who might enjoy the benefits of being a public com- pany. One of the biggest reasons companies go public is the access to capital that it brings. Right now, the private capital is readily avail- able for student housing compa- nies so it is hard to see the reason to go public unless they are recy- cling a capital partner. SHB: In our January/February 2018 issue, you answered our "Question of the Month" that asked about predictions. You sug- gested that the wealth effect from the strong returns in the stock market in 2017 would make par- ents feel good about their college savings accounts and that would make them a little less price con- scious about housing than in pre- vious years. Did you see that in your leasing results this fall? What did you take away from this leas- ing season? Adelman: I do stand behind that answer. When you are develop- ing new assets versus value-add assets, you are going to be priced at the top of the market most of the time. We are seeing great absorp- tion this year and I know our peers are as well this fall. What that tells me is that mom and dad have the disposable income to put their kids in brand new private housing versus a less expensive product. I haven't seen everyone's num- bers for this fall, but those I have spoken with have generally been very positive about their results. I won't be surprised if everyone has a good fall this year. SHB: What do you see for the industry for the next 24 months or so? Adelman: The hard part for the industry to figure out right now is interest rates. We are in an envi- ronment of rising interest rates. The question is will cap rates also rise? Historically and mathemati- cally, they should. However, we seem to have an artificial amount of capital interested in the student housing sector right now that is keeping cap rates where they are. That is the only thing I can't figure out; what is the lag time between the rise in interest rates and cap rate movement. SHB: Do you think the investment market for student housing is sat- urated right now? Adelman: There is always product for sale. It is just a matter of wheth- er it is good product. The industry has the have and the have-nots right now. There is a lot of bad student housing for sale. There are some buyers who will take a chance on that type of product that has low occupancy because they can buy it below replacement cost. On the other hand, there are some nice projects on the market. Some of it is pristine and relatively new that is trading at a sub-5 per- cent cap rate. It really is a tale of two worlds. What is unique is that I have never seen the spread between Class A and Class C as tight as it is now. I don't think buyers are being compensated for their risk when they go down in quality. SHB: Does it surprise you — the amount of foreign capital entering the space or looking to enter? Adelman: Because of our own experience, we saw early on that foreign capital was going to enter the student housing space. It is coming into the U.S. real estate market like crazy. We have two Korean pension funds who are investors in our latest fund. We are their first U.S. real estate invest- ment. That is unheard of that they would choose student hous- ing first. You'd think they would invest in office buildings in New York City. They simply under- stand the story of student housing. SHB: You referenced FS Investments before. What else keeps you busy? Adelman: About three years ago, along with the group who owns the Philadelphia 76ers, we bought an English Premier League soccer team called Crystal Palace. That has been fun. I'm also the lead director and investor of a private aviation company called Wheels Up. FS Investments is where I get my fix of being a public company, since the company is public. SHB

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