Student Housing Business

SEP-OCT 2018

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

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TIER 2 & 3 MARKETS September/October 2018 66 accept a much higher percentage of the applications they receive compared to Tier 1 schools, so they're more vulnerable to chang- es in demand." In Tier 2 or 3 markets, would-be investors also pay more attention to affordability, rising levels of student loan debt and alternative forms of education. These trends are more likely to impact lower- tier markets. Some are also watching how selectivity at Tier 1, main cam- puses could push student popula- tions into lower-tier markets. The University of Texas, Austin, is an example of a flagship, Tier 1 uni- versity that's becoming more and more selective. The University of California system, as well, is examining campus populations at its nine campuses. According to a July 2018 arti- cle in the Los Angeles Times about lowering tuition, UC regents are examining whether there are too many non-resident students con- centrated at too few campuses and whether this balance weakens eco- nomic and ethnic diversity. "If you look at UT Austin taking only the top 6 percent of students, you're leaving out kids who have substantial GPAs who'd have the academic capability to go to a top school in any other state," Phillips says. "Many students might go to Blinn College to put in the time to eventually end up at Texas A&M, for example. I'm willing to look at markets like that because they have the academic standards. We've seen across the board that there is a correlation between GPA and credit quality. We'd be interested at looking at satellite markets because they have similar characteristics as the mother ship, if you will." For now, Tier 1 markets are the most active and boast lower cap rates are lower, but those rates are compressing in all market tiers. According to CBRE's National Student Housing Group, there were 111 transactions across all non-Division 1, non-Power Five markets, while 133 transactions were recorded at the Power Five universities alone. CBRE reports the average cap rate for a Division 1, Power Five university year to date in 2018 was 5.23 percent versus 5.96 at a non- Division 1 school. "Cap rates have changed over time, but I wouldn't say the gap between cap rates at Tier 1 and Tier 2 schools has changed drasti- cally," Roth says. "That gap isn't changing because there is a lot of capital that's flowing to the mar- ket because the industry overall is doing very well." SHB YOU BRING THE LEMONS. WE'LL BRING THE SUGAR. FIND OUT HOW WE CAN SWEETEN YOUR DEAL, CALL US AT 607.444.2202 • 5-STAR REPUTATION • TOP 50 ORA POWER RANKING • 98.3% OCCUPANCY • 4.1% RENT GROWTH • 12.3% NOI GROWTH • TIER 2 & 3 MARKET EXPERTS DEVELOPMENT | MANAGEMENT | ACQUISITION 607.444.2202 • WWW.NDGLIVING.COM The Vecino Group's Muse in Omaha, Nebraska, that will serve Creighton University, will deliver in 2019.

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