Student Housing Business

NOV-DEC 2017

Student Housing Business is the voice of the student housing industry.

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THE SHB INTERVIE W November/December 2017 44 Rabil: I have done enough student housing development to never personally want to do anymore development again. When I was a student housing developer, one of the projects I was developing went up in flames mid-way through construction. There's no such thing as a low risk development. There are a lot of things that can go wrong. We have dealt with a num- ber of challenges. The negative surprises far outweigh the positive surprises, but that is just the nature of development. Zogby: The challenges are the same that they have always been, it is just the markets are much tighter. Again, we are not just underwrit- ing financial pro-formas when we are under- writing development deals, we are underwrit- ing constructability of a deal and the ability to deliver on time. Given the nature of the current construction market and labor pool, our con- struction timeline is stretching further out. We see a lot of developers being more conservative with delivery times. SHB: What do you like about the new devel- opments that are coming to market? Are there features and attributes that you like better than those in properties developed five years ago? Zogby: The nature of development has changed a bit. A few years ago, there was a big shift to have everything walkable to campus. With that, you end up paying more money for land and your rents are 20 to 30 percent higher, so you are building vertical. That means concrete con- struction and a much more urban product. The amenities that are delivered in an urban project are intrinsically different from one that is on 10 acres two miles from campus. Over the past five years, you have also seen a shift in the mindsets of students. They are more serious about their academics and what they achieve outside of school during their time at the campus. Student housing has become geared towards that more serious student. Don't get me wrong; they all still love a pool party and free food, but the amenity space is getting more mature. Rabil: You've seen that in the shift in marketing of properties as well. The marketing is nuanced to Gen Y and Gen Z. They don't want to be sold to anymore. You can't give them a koozie and expect them to sign a lease. Today, it is about selling a lifestyle. Who you are is defined by liv- ing at a property. SHB: Kayne Anderson's funds are active in other sectors beyond student housing. Can you give us an overview of what else the company is investing in and looking at? Rabil: In addition to student housing, we are also active in medical office and seniors hous- ing. The subsector of seniors housing that we are active with is independent living and assist- ed living. Everything we own in the seniors housing sector is private pay. In both seniors housing and medical office, we are seeking the top tier of the segment, much the same way that we played the top tier in student housing. For seniors, that means the upper middle market. In medical office, our top five tenancies are oncology, orthopedics, neurology, cardiology and diagnostics. Those are the highest margin businesses within healthcare. We made our first investments in these areas in 2013. We have quickly ramped up to being one of the biggest players in those asset classes. The vast major- ity of our investment dollars are being placed in those two asset classes. Student housing has been a great template for us to follow, and self- storage has been as well. SHB: In student housing, have you considered going on-campus, as other opportunistic funds have?

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