Student Housing Business is the voice of the student housing industry.
Issue link: https://studenthousingbusiness.epubxp.com/i/488341
SECOND-TIER MARKETS STUDENT HOUSING BUSINESS .COM MARCH/APRIL 2015 99 DETERMINING PROJECT FEASIBILITY IN UNTESTED MARKETS Conducting a feasibility study in second tier markets is key to predicting success. Here is how one leading consultant studies a market. By Jonathan Bove A As the student housing development sector con- tinues to expand, developers and investors are looking away from the highly saturated markets found at some frst tier schools to investigate more opportunities at second and third tier institu- tions. In many cases purpose-built student housing – with student-focused amenities, residence life programming and by-the-bed leasing – in these secondary markets is dated, limited or simply lacking. Campus Advantage, having completed over 250 professional consulting engagements, utilizes a custom approach for conducting feasibil- ity assessments in markets with little or no existing modern purpose-built student housing. areas of sTudy The keys areas of focus when analyzing fea- sibility in these underserved markets include assessing the health of both the institution and the market, and then evaluating proj- ect specifcs within the context of those two fndings. Institutional health, when consid- ered from the perspective of student hous- ing, includes determining current full time undergraduate enrollment, strategic planning and published enrollment projects, which can have an impact on the availability of traditional fnancing for the project. This is particularly important for projects that hope to attract institutional buyers. Other useful data regarding the subject college or univer- sity includes the percentage of commuter stu- dents, the percentage of out-of-county/area students and any niche academic programs that may be growing in terms of regional or national recognition. As always, head- lines which increase the school's reputation, whether they be investment by local business, securing distinguished faculty, or even an uncharacteristically deep run during March Madness, can all contribute to a healthy stu- dent population and healthy demand for a new student housing development. The market itself must be also evaluated, though this portion of the research bears the most similarity to a typical multifamily apart- ment study. Typical demographics and the pricing at comparable properties should be analyzed just as with any new apartment development. There are key differences in demand based on student housing's 12 month leasing cycle, as well as the need to standard- ize rates based on utility inclusions — stu- dent housing projects tend to favor all-inclu- sive pricing as an attractive convenience for parents. Lastly, the specifcs of a given project must be evaluated. This includes a site analysis reviewing distance to campus, quality of the neighborhood, safety and security and other common factors. Given the aforementioned likelihood of all-inclusive pricing, it is also important to analyze the difference between typical non-inclusive multifamily rents and the proposed rate structure — value compari- son charts can help here. Other market spe- cifc considerations might include union labor costs or utility pricing. Tools and meTrIcs Key tools for conducting fnancial analy- sis of the asset include benchmarking data to complete a reasonable operating budget. Student housing carries higher operational costs than traditional multifamily units — as an example, additional payroll costs related to 24hr on-call services, live-in staff, and redun- dancy in staff coverage. Development budgets should also include a full 12 months of leasing activity prior to the property's opening, mir- roring the standard 12-month lease-up cycle of student housing. Student housing expenses can also be different in other areas, such as student-appropriate furniture packages or utility usage. One simple litmus test for demand is the capture rate analysis. This comparison of total property bed count versus full-time campus enrollments limits the risk of a missed lease- up by providing a simple rule of thumb for maximum property size. It is important to note that other factors mentioned above can impact or adjust these metrics. At the sim- plest level, a student housing development in an untested market should conservatively contain fewer beds than 8 percent of total full- time enrollment less on-campus beds, with the possibility of growing that bed-count to 10 percent for less-risk averse developers. case sTudy: hudson lofTs Located in Erie, P e n n s y l v a n i a , Hudson Lofts was the frst truly pur- pose built student housing project developed to serve Penn State Behrend. While lesser known than some other PSU branches, Penn State Behrend is ranked among the top public col- leges and universi- ties in Pennsylvania for its student-to- faculty ratio, SAT scores, frst-year student retention rate, and graduation rate, according to U.S. News & JONATHAN BOVE Vice President for Business Development and Consulting Services Campus Advantage Located in Erie, Pennsylvania, Hudson Lofts was the frst truly purpose built student housing project developed to serve Penn State Behrend. With project feasibility having been successfully demonstrated, the lease- up process for Hudson Lofts by Campus Advantage and the Hudson Companies resulted in 100 percent occupancy for fall 2014.