Student Housing Business is the voice of the student housing industry.
Issue link: https://studenthousingbusiness.epubxp.com/i/616872
QUESTION OF THE MONTH NOVEMBER/DECEMBER 2015 STUDENT HOUSING BUSINESS .COM 28 Will the gap between student housing and conventional multifamily cap rates widen or narrow in 2016, and why? The gap has already narrowed with student cap rates on par with multifamily cap rates for the last four quarters of sales data tracked by CBRE. I believe this narrowing is justifed, and there is a strong argument that student cap rates should trade inside conventional multifamily in the future. Investment in student housing offers not only long-term stability and a defensive play relative to multifamily, but also a more attractive risk-adjusted return. ACC has achieved 4.3 per- cent annual SS NOI growth since 2004, compared to 4 percent for multifamily, despite the strong rebound from the apartment sector in recent years. — William Talbot, EVP, Chief Investment Offcer, American Campus Communities Talbot We can debate the extent of the spread, but I think we would all agree it is as thin as it has ever been given the positive performance of the sector over the past few cycles. But is that a good thing? The spread is what has institutionalized this sec- tor. It is what's built up the REITs, and drawn the pension funds and private equity frms and other sophisticated capital to the segment. They are chasing yield — pure and simple. They are look- ing to student housing (and other niche sectors) because they are not getting the necessary yield in the traditional asset classes. The spread is a good thing and justi- fed given the inherent operational risk of student housing. — Brian Thompson, Director of Acquisitions, CORE Spaces Thompson My instincts say widen. When the Fed raises rates in December or January, the investment com- munity at large will "hit pause." Our sector will react slightly more cautiously, causing a widening between student and multifamily. Ours is a small- er universe; market-rate investors have more abil- ity to spread risk and multifamily cap rates should rise less than ours. Both the student housing and market-rate industries experienced a very high transactional volume for third and fourth quarters in 2015, which has driven down cap rates for both asset classes. This will likely stabilize/normalize in 2016 and I expect we will see a small gap in cap rates, similar to previous spreads. However, as a general trend, there has been a narrowing between the two over the recent past and I expect they will get closer after the initial interest rate increases are introduced and the investment com- munity better understands how that event affects returns. — Dorothy Jackman, Managing Director, National Student Housing Group, Colliers International MJW Investments believes that the margin between multifamily housing and student hous- ing cap rates will remain the same in 2016. Even though many economists project that interest rates will go up, we do not believe this change will motivate student housing owners to sell their properties. Similar to 2015, there simply will not be enough student housing sales volume in 2016 to move cap rates either way beyond the normal ebb and fow of the real estate market. — Mark Weinstein, Founder & President, MJW Investments Jackman I anticipate the gap between student housing and conventional multifamily will continue to narrow in 2016. As the cost of debt is expected to rise during 2016, the narrow spread between conventional cap rates and interest rates will level out conventional cap rates, which have compressed 25 basis points during the past year. The wider spread between cap rates and interest rates for student housing affords student hous- ing investors more "wiggle room" and potential for further cap rate compression as we see more investors enter the sector for greater yield over multifamily. — Jaclyn Fitts, Director of Student Housing Investment Properties | National Student Housing CBRE | Capital Markets It seems like the Fed is fnally gearing up to pull the trigger on its widely anticipated interest rate hike, which could logically result in some mod- est offsetting cap rate expansion across real estate asset classes. That said, the student housing vs. multifamily spread has narrowed considerably, due to continued attractive fundamentals in the student sector, a generally strong lease-up into this academic year and ongoing institutional capital interest in student housing. Although the publicly traded student comp universe continues to shrink (now down to a crowd of two), we continue to believe that strong private market acquisition interest will maintain downward pressure on student cap rates for the foreseeable future. However, multifamily vs. student housing cap rate inversion is unlikely to the extent that higher rates will likely restore the tradi- tionally greater comfort investors have with multifamily product. — Avi Lewittes, Chief Investment Offcer, The Scion Group Weinstein Fitts Lewittes