Student Housing Business

MAR-APR 2018

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

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THE SHB INTERVIE W StudentHousingBusiness.com March/April 2018 37 student housing drop to 4 or 4.25 percent. We have seen pricing for leveraged buyers start to drag. SHB: Are developers and buyers changing their strategies to accom- modate this new institutional capi- tal? How is the influx of capital changing their mindsets? Bradley: Developers are generally trying to hold longer after they develop. They have also been plac- ing lower leveraged construction financing on properties because they are larger in nature. I don't think the larger project sizes are based on new equity requirements. I think that is based on what the developers believe is the best use on a site that is adjacent to campus and how much they are required to pay for the land and construction. We have seen a few buyers change strategy from pure value add to core or core-plus acquisitions and with the influx of institutional capi- tal, there are more opportunities to acquire and sell institutional portfolios. SHB: Are you seeing more inter- est in secondary markets? Have they been abandoned by the larger developers? Bradley: Developing in secondary markets is tough and takes a partic- ular kind of developer. The cost is high to build anywhere these days so if you are not able to get a going- in yield of 7.5 percent or more in secondary markets, it doesn't make a lot of sense to build. Two of the most historically prevalent devel- opers in secondary student hous- ing markets, Campus Crest and Place Properties, are no longer around building in these markets. Secondary markets are also not as liquid as strong university markets, so selling a property in a second- ary market will not create as much interest as one near a top tier uni- versity. We tend to see cap rates in the mid-5 percent to mid-6 percent range if not higher in secondary markets. SHB: What is the most challenging aspect of the industry to you at this point? Bradley: For us, it is always manag- ing the expectations of our clients, no matter what the climate. Every day we hear of record breaking cap rates in student housing, but many are not aware of the unique cir- cumstances and structures of each transaction, which creates an envi- ronment with high expectations for anyone taking stabilized deals to market. For us, going through the underwriting process with a client " Student groups are strategically putting together portfolios with assets in well-known markets that any international investor would recognize. — Timothy Bradley, Principal of TSB Realty and Founder of TSB Capital Advisors

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