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Issue link: https://studenthousingbusiness.epubxp.com/i/783396
46 INVESTMENT SALES UPDATE January/February 2017 WHERE STUDENT HOUSING POTENTIAL Meets PERFORMANCE $800+ MILLION IN ACQUISITIONS The Lodge on the Trail Purdue University West Lafayette, IN South Duff Iowa State University Ames, IA The Haven Ball State University Munchie, IN The Lofts West Virginia University Morgantown, WV 100 Midtown Georgia Tech Atlanta, GA 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. • Completed more than $800+ million in acquisitions since 2007, representing approximately 20,000 beds • Targeted $400+ million in acquisitions over the next three years • Developed extensive capital relationships for best-in-class investment capacity and execution 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: Our growing team continues to maximize value through positive investments. We are industry leaders with proven experience, innovation, and success. with declining enrollments," says Ryan Tobias, partner with Chicago- based Triad Real Estate Partners. "A lot of smaller schools, especially in the industrial Midwest, swelled in enrollment during the Great Reces- sion as some young people went to college simply because employment after high school wasn't an option. As the economy has improved, some smaller regional universities are getting creative to boost enrollment and find a path forward." Secondary schools are a mystery to many institutional investors, who do not necessarily want to deploy teams of analysts to study the mar- kets and competition for what may be a smaller return with a larger risk than a similar asset at a larger institution. That's left this market to a smaller buyer pool, many of whom have familiarity with the market, or are willing to take the time to analyze and understand its intricacies and attributes. While many markets may be in the throes of growth, others may be receding from swells in the recession. Regardless, they present a risk that some investors are willing to take for the potential reward. "We've seen some Tier II and Tier III assets spending more time on the market," says Jackman. "This is likely due to those universities not hav- ing a long track record of enrollment, and they may be surrounded by developable land, therefore without any significant barriers to entry." What's Ahead For 2017 The investment sales market has shifted to more year-round activity, whereas a few years ago it was entirely focused on the fourth quarter. While investment sales brokers still say the fourth quarter is one of their busiest, they also add that no time is a bad time to bring a property to market, largely because both established and new investors in the sec- tor have become well educated on the fundamentals of the industry. With 2017 off to a robust start — most brokers we interviewed report- ed having portfolios or many assets in the market or about to go on market — many are predicting a year similar to 2015, where asset activ- ity was strong, but there weren't the large portfolio sales that 2016 saw. Some institutional investors are seeking to sell non-core assets, while other investor groups want to ramp up value-add and other property niches. Many brokers are seeing an uptick in older assets coming to market, prompting a belief that the value-add market will have a strong year. "We see more value-add properties coming to market, given the age of the first generation of purpose-built product," says Jackman. "At the same time, we see more urban infill product being delivered, and fewer deliveries of further-from-campus product. I believe more investors will also consider Tier II and Tier III markets, as there is less competition for those assets, and they can still offer a solid return on investment." One factor that may impact the market in 2017 is interest rates. With Treasury rates up since the election and interest rates rising, albeit slowly, there will be some slight impact on pricing debt for acquisitions and overall valuations. "Depending on interest rates, we expect 2017 to follow trends similar to those in 2016 in that there will be a strong amount of transaction vol- ume, more new entrants to the space, opportunistic sales, and buyers finding ways to competitively position themselves," says Lang. "There are some sellers who are of the mindset that they want to get their properties to market now before any further potential rate increas- es," says Fitts. What won't be a factor, say many, is CMBS maturities, which were expected to have a significant tranch maturity in 2017. Many believe that banks try to work with borrowers for as long as possible to resolve CMBS maturities versus pressing the assets to sell. A number of brokers mentioned the only CMBS sales they had done in 2016 were from TIC owners; the structure makes the debt extremely difficult to refinance, making a sale a viable option. "Debt maturities will create additional transactions in the market- place, but we anticipate 2017's sales activity to be closer to 2015 than 2016," says Larimer. SHB