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 March/April 2018 38 and making sure their underwrit- ing is realistic for potential inves- tors is key. There's a story behind each one of those transactions and partnerships, and that story was not written in a day. It takes a lot of work to put large transactions together, especially when it's the investor's first investment in the student sector. SHB: What are the biggest threats to the student housing industry? Bradley: Rising interest rates, over- supply in certain markets, and long-term state funding in certain markets. As we all know, oversup- ply is contained to individual mar- kets, but it is easy for a couple of oversupplied markets to spook outside observers on the space. There is also the performance of the portfolio acquisitions execut- ed in the last few years with new investors, as I mentioned before. Student housing is an operations- intensive business; it is very depen- dent on operators and managers consistently executing a business plan year in and year out. Due to its annual leasing cycle, student housing is more susceptible to overreaction to a short-term miss, which can in turn create panic and longer-term ramifications. We've seen this play out recently with the public REITs following some barely missed projections in 2017. A small miss caused a shift in per- ception of the space, which can have an impact in our relatively small, close-knit industry. And this is all over a few percentage points when anyone else non-public would have considered the perfor- mance a successful outcome with the occupancy and rent growth the REITs experienced. We see a big disconnect on the private and pub- lic market today. As I mentioned, the private market for Class A stu- dent housing properties is at an all-time low in the 4.5 to 5 percent range and the public portfolios are trading at a discount to the market in our perspective. SHB: What is your perspective on the participation of the gov- ernment sponsored entities (GSEs) in the industry, since they are the largest lenders? What about the life companies? Bradley: Fannie Mae and Freddie Mac will continue to lend to the student housing sector in 2018 and beyond. In 2017 alone, Fannie Mae lent over $3.8 billion in student housing and Freddie Mac lent over $1.7 billion. The agencies look care- fully at sponsorship and the enroll- ments of the universities where the projects are located. We are see- ing increased competition for 50 to 60 percent loan-to-value deals as more life companies dip their toes in the student housing space and we have seen some life company investment on the equity side as well. The agencies like that there is prevalent capital for student hous- ing and we expect them to have another strong year in 2018. SHB: TSB Realty, your investment brokerage business, has grown and become quite successful. How did that business evolve, and where is it going? Bradley: We opened that line of business because our cli- ents requested it. At TSB Capital Advisors, we were already finding our clients development and per- manent financing and helping to arrange their joint venture capital partners, so as we saw the student housing market grow, we saw the opportunity to create a vertically integrated company and seam- lessly service our clients. The piece that our clients were missing was being able to sell or recapitalize properties to other entities. We like the ability to be able to offer all executions when a client is looking at a capital event so we — my part- ners, Shawn Sweeney and Austin Repetto, and myself — brought in Randall Calvert to run point on TSB Realty. We follow many proj- ects from well before a shovel hits the ground and that is a tremen- dous advantage for us and our cli- ents when you know the history of the property and follow the initial lease-up. Where are we going? As men- tioned previously, a big advan- tage for us is the synergy between our two companies. Between TSB Capital Advisors and TSB Realty, we are fortunate to have an unpar- alleled wealth of knowledge in the student housing industry and can offer our clients a simultaneous, multi-pronged approach to capital events, helping clients determine whether a disposition, recapitaliza- tion or refinance is the best possible execution. In addition to serving our existing clients we are continu- ally trying to educate new inves- tors on the strong fundamentals of student housing. We are constantly assessing and reinventing our- selves as the space evolves, and we plan to continue to approach capi- tal events creatively for our clients as we take on some bold initiatives this year. But at the end of the day our focus remains on relationships. As the slogan says, we strive to continue to redefine ourselves and our relationships and we are only as good as our last deal. SHB TSB Capital Advisors consulted on the recapitalization and ultimate sale of the Core Spaces/DRW student housing portfolio to American Campus Communities. The seven property portfolio included two operating assets, including the Hub at Eugene (pictured), two 2017 deliveries and three 2018 presales, all located at Tier 1 universities. TSB Realty completed the sale of The Element, a 288-unit, 792-bed student housing community near California State University, Sacramento on behalf of VerTex Student Housing Partners and Harrison Street Real Estate Capital.

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