Student Housing Business

SEP-OCT 2018

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

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What investors are looking for most, adds Gonzalez, is the ability to increase net operating income and value on their investment. "Typi- cally, even with a stabilized asset, buyers want to see some opportunity for value creation, whether that is an upside in rent or a light val- ue-add," says Gonzalez. "Even if the property is five to seven years old, they want to be able to do something to increase the bottom line." "We are still seeing a lot of core and value- add properties come to market," says Lang. "That is mainly because the two main buckets of capital remain chasing new, core construc- tion projects at Tier 1 universities and value- add deals at Tier 1 universities." Lang says he has seen a lot of small portfo- lio activity, noting that ARA has several small portfolios under contract and on the market at present. Ryan Tobias, partner with Triad Real Estate Partners, has seen more value-add properties come to market in his practice. Tobias' group recently listed the 432-bed The Pointe, a value-add project near the Univer- sity of Illinois and a 256-bed project at Indiana University-Purdue University Indianapolis called Annex on Tenth that has the potential to add 300 more beds. "The most competitive deals continue to be pedestrian, value-add projects at Tier 1 uni- versities," he says. "After that are core deals that are pedestrian at Tier 1 or growing Tier 2 schools. Buyers are a little more flexible in terms of profile of school and location as they search for yield." Due to the popularity of value-add invest- ments, meanwhile, prices have risen — along with interest rates — compressing the mar- gins on operators' turnaround plans. "While buyers are still seeking value-add acquisitions, the returns are not at the same premiums that they used to be and typically require the investor to take greater risk," says Bradley. "However, we have more than enough capital for both core and value-add acquisitions in the market today." Indeed, many brokers report the compressing margins on value-add profitability is a key issue between buyer and seller in many markets. "One of the top comments we hear from groups is the discrepancy between buyer and seller expectations, especially in value-add opportu- nities," says Baird. "Buyers feel that too often sellers are asking them to pay for the upside that is yet to be delivered. We focus on first making sure the opportunity pencils from a yield perspective using realistic underwriting, then check to see how pricing lines up with sales on a per bed basis, and lastly look at the cap rate. The cap rate first approach never seems to get the full story out. Groups that are too focused on that one aspect miss a lot of quality opportunities." Who's Buying and Selling Institutional capital remains the strongest buyer set in the industry. But they and every other kind of investor benefit from work done by sellers and their brokers in advance of list- ings coming to market. "Expectations are realistic from those sell- 50 September/October 2018 INVESTMENT SALES AVAILABLE The Nine @ Memphis AVAILABLE 1047 Commonwealth TSB Realty presents the 180-unit student housing community located near the Boston University campus in Boston, Massachusetts. See what TSB Realty can do for you by contacting us today: | 610.905.1647 Unmatched Experience. Exceptional Service. Proven Results. Work with the leader in student housing investment sales. TSB Realty presents the 114-unit, 385-bed student housing community located near the University of Memphis campus in Memphis, Tennessee. RYAN LANG Executive Managing Director of ARA's Student Housing Group TRAVIS PRINCE Executive Managing Director of Student Housing Capital Markets, Cushman & Wakefield RYAN TOBIAS Partner, Triad Real Estate Partners

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