Student Housing Business is the voice of the student housing industry.
Issue link: https://studenthousingbusiness.epubxp.com/i/564824
BUILD VS. BUY JULY/AUGUST 2015 STUDENT HOUSING BUSINESS .COM 36 S Student Housing Business recently talked to sev- eral buyers and developers about what makes more sense in today's market: building, buying or both. SHB spoke with Andrew Stark, CEO of Campus Evolution Villages, who has been a very active acquirer; Wes Rogers, president and CEO of Landmark Properties, who has developed its holdings; Michael Orsak, senior vice president of investments for Campus Advantage, who acquires and develops its properties; Troy Manson, execu- tive vice president of investments for University House Communities; and Dorothy Jackman, man- aging director of the National Student Housing Group at Colliers International. SHB: Why is building or buying — or both — right for your company? Stark: I can't say that we will never build student housing, but right now we are able to buy at a cost basis that is lower than we can build in markets where we want to be. If we were looking at markets where we wanted to be and there was nothing available, and we could justify the price for bed to build, we would consider building. At the moment, our cost basis per bed is below appraisal. We are fnding opportunities where we can buy older properties with good bones that are well located and still be at an attrac- tive cost basis. We are in one market where the univer- sity has 14,000 stu- dents and we are one of two student housing players in town. A new player is coming and add- ing 500 beds and that is impacting us. We know, how- ever, that they can't justify their costs. Until we fnd that tipping point then we will likely be buy- ers. My background is in single-family home- building, so development is in my DNA. I'm always looking at new development and we are considering a few sites now. Manson: Both ave- nues are certainly very competitive right now, and we are actively pursu- ing both develop- ment and acquisi- tion opportunities at the moment. Our investment focus is centered around best-in-class assets in close proxim- ity to campuses at Tier 1 universities nationwide. As such, we've built roughly 70 percent of our current portfolio, with the remaining coming through selective acquisitions. Development obviously garners the highest return on cost, but comes with a signifcantly higher initial risk. Acquisitions allow us to enter new markets — or gain critical mass in our current ones — while enjoying immediate yield. The combination provides the best risk adjusted return for our shareholders. Rogers: Given the pipeline we have, our core competencies and the yields we're accus- tomed to achieving, development just makes a lot more sense to us. It is worth noting, though, that we are developing several proj- ects now, which we intend to hold longer term either on our own balance sheet or with a new capital partner, rather than selling. Orsak: We have diferent equity partners with varied risk tolerances and each has its own preferred strategy to invest in the space. For our pension fund partners, low risk current return is their preferred investment strategy and acquisitions of core student housing pro- vides them with long term stable cash fow. For our private equity partners, shorter hold periods and higher returns are preferred, so we are developing student housing for those partners. SHB: Why is now a good time to buy? Jackman: Now is a good time for buyers due to the continued low interest rate environment. Also, we are in the third quarter, approach- ing the fourth quar- ter, when the larg- est number of assets will be brought to market, so there is an increase in oppor- tunities. Selling now is good for similar reasons. There have been some strong new entrants into the space with sig- nifcant dollars and a strong appetite which will potentially lead to upward pricing pressure. SHB: Where do you feel the returns are with development or acquisitions? Rogers: Returns will vary depending on mar- kets and location. We are developing projects Development Acquisitions Some companies see now as a time to develop, while others believe now is the time to grow through acquisition. Here are the thoughts of a few leading builders and buyers, as well as an investment sales broker, on why the timing is right for both. By Randall Shearin TROY MANSON Executive Vice President of Investments University House Communities w s t i a w s d o h t o i s i n t h u e j u U ANDREW STARK CEO Campus Evolution Villages DOROTHY JACKMAN Managing Director of the National Student Housing Group Colliers International " Development obviously garners the highest return on cost, but comes with a signifcantly higher initial risk. Acquisitions allow us to enter new markets — or gain critical mass in our current ones — while enjoying immediate yield. — Troy Manson VS.