Student Housing Business is the voice of the student housing industry.
Issue link: https://studenthousingbusiness.epubxp.com/i/564824
with development yields as low as 6 percent and as high as 8.25 per- cent. We are currently selling about seven assets, and we are seeing buyers pay cap rates of around 5 percent to 5.25 percent for pedes- trian core, urban infll student proj- ects at Tier 1 schools. Cap rates for non-pedestrian cottage deals at Tier 1 schools are more like 5.75 percent to 6 percent. From a return standpoint, we look at deals based on a one-year stabilized yield on cost as well as on a fve-year levered and 10-year unlevered IRR basis, depending on our capital partner. Given that development is much riskier than acquisitions, our capital partners and I expect higher returns to compensate us for taking that risk. Orsak: For our core acquisitions, we are seeing returns in the high 6 percent, low 7 percent range unle- vered on 10-year holds. This gener- ally equates to deals in the 5 cap range. When we are buying new, we typically don't have much capi- tal improvement planned. When we are buying a well located older product, but still purpose built, we spend capital on the Internet infrastructure and club house. We don't look to increase our returns from those investments, but rather ensure the cash fow is more stable long term. SHB: What would tip the hat for you to develop versus acquire? Stark: In the two developments we are looking at now, one is in a mar- ket where there has been almost no new supply of purpose-built student housing added over the last 10 years. The other market is a large urban market with a limited current supply of student housing and a location that is across from campus. We won't be the guy who comes to town and builds some- thing far from campus. SHB: What assets are you seeking to buy or build? Where are you fnding opportunities? Stark: First, we seek properties where we can add value to the physical component and the man- agement component. We look for assets that, in some ways, might have some reputational issues. We think we are good at turning assets around over time. We want to have returns that justify the additional work we have to put in to the properties. Manson: We like to think that we're building the best student housing product out there, so I would jokingly suggest that we're buying the second best product. In all seriousness, our criteria are very similar for both acquisitions and development, with the excep- tion of yield expectations of course. Since we are primarily acquiring assets that are brand new to three years old, roughly, we really do not anticipate any up front capital expenditures in general. We're a long term investor and use lever- age modestly, so we evaluate deals largely on current returns and total yields, as opposed to residual value or leveraged yields. Our criteria are pretty similar for acquisitions WHERE STUDENT HOUSING POTENTIAL Meets PERFORMANCE A Top 10 Buyer of Student Housing since 2007, Pierce Education Properties is a major national investor and operator of student apartments. Through our acquisitions of core, core plus and value-added assets, we have: • Completed over $550 million in acquisitions since 2007, representing over 13,000 beds • Targeted $600 million in acquisitions over the next three years • Developed extensive capital relationships for best-in-class investment capacity and execution Our growing team continues to maximize value through positive investments. We are industry leaders with proven experience, innovation, and success. P i e r c e e d u c a t i o n P r o P e r t i e s . c o m Contact our acquisitions team at 619-297-0400 or email mmaruccia@PierceEducationProperties.com to discuss potential opportunities. INVESTMENT SPOTLIGHT: The Lodge, a 576 bed community serving Purdue University students, is our signature apartment property just west of Indiana's fagship campus. Purdue has been a long-term target market for establishing's PEP's presence at major Midwestern universities. $550+ MILLION IN ACQUISITIONS 1995 2015 2 0 T H A N N I V E R S A R Y " When we are buying a well located older product, but still purpose built, we spend capital on the Internet infrastructure and club house. We don't look to increase our returns from those investments, but rather ensure the cash fow is more stable long term. — Michael Orsak MICHAEL ORSAK Senior Vice President of Investments Campus Advantage BUILD VS. BUY JULY/AUGUST 2015 STUDENT HOUSING BUSINESS .COM 38