Student Housing Business

MAY-JUN 2018

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

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THE SHB INTERVIE W May/June 2018 32 S Analyzing The Industry REIT analyst Alexander Goldfarb keeps a watchful eye on the industry by evaluating the results of public — and private — companies in the sector. Interview by Randall Shearin and Richard Kelley Studying the student housing sector is no easy feat. While data about industry performance is increasing in both quantity and quality, it is difficult to create benchmarks since there are only two public companies wholly focused on the sector. Alexander Goldfarb, manag- ing director, equity research‚ REITs at Sandler O'Neill + Partners, watches the student hous- ing industry very closely, even hosting a stu- dent housing-focused investment conference each summer in New York City. While focus- ing on the two public companies, Goldfarb has extended his knowledge base to include a number of larger private companies to get a broad spectrum of the industry. SHB: How do you, and other analysts, follow the student housing sector? How long have you been following student housing? Alexander Goldfarb: I've been covering stu- dent housing since 2006, so just over a decade, and I have been covering REITs since 2002. When I originally picked up coverage of stu- dent housing at UBS, the sector was still trying to shake off the "Animal House" reputation. You definitely had a lot of cowboy-esque type characters; a lot of young owners; a lot of peo- ple talking about putting portfolios together and quickly flipping them; and a lot of par- ties getting involved in all different kinds of financing strategies. As we highlighted in our recent InterFace Student Housing conference write-up, the industry has definitely matured. Not only is everyone sporting more gray hair, but also the tone and the strategies discussed are very different than the panels were in 2007 or 2008, or even after the credit crisis. That's a huge reflection of how the industry has grown. Student housing as a sector pretty much formed in the 1990s, but really didn't get traction until the 2000s. I would argue that it's really been since the credit crisis that the sector has really come into its own as far as having big, sustainable platforms. SHB: In your role as an analyst, how do you and others cover the space? Who else is read- ing your reports and how are you making your mark on the space? Goldfarb: One, by attending industry confer- ences and reaching out to folks. Certainly, because there are only two public student housing companies, you have to spend time with the private companies to really get a good sense of the industry. That's the beauty of real estate. Thankfully, real estate remains an industry that almost repels technology, and I say that in a good way. Meaning that it's still an industry that thrives on direct com- munication. Whether it's in person, picking up the phone, or even email, you just build those networks and that's one of the beauties of the industry. Sort of like the Woody Allen saying, '90 percent of success is just showing up.' You show up enough times and you hear what people are saying. You listen, and you figure out which people matter in the relevant areas, and you give them a call, or you walk up to them at a conference. We've done that over the years, and we're now hosting our eighth annual student housing conference. It's designed for the REIT investors who can't possibly make time to go to all the different industry conferences that each sector has; we try to bring a number of those private people to New York to offer that insight. At the same time, it helps the investors get a real sense of the story, but also just to understand that the sector is a lot bigger than just two publicly traded companies, and that's something that's often lost. When you find out that so much of the industry is private and that these compa- nies may ultimately become public one day, it makes a much bigger reason why student housing public investors should pay attention to it, because there are companies that may come their way. In addition, when you speak to the private companies, they've certainly seen what's worked and what's not worked in the public sphere. We've had about four public student housing names over the years, and American Campus Communities (ACC) was the only one that was a success right out of the gate. EdR took a change in management in order to get its footing. We've had two oth- ers which aren't here anymore. The sector has definitely had a rough time in the public space, and I think that the more public inves- tors hear from the private investors about how private platforms have matured and become much more robust, that provides credibility. As new players go public, there will not be the stories repeated of those that didn't work out. They are going to be much more like the two publics that we have today. SHB: You men- tioned two com- panies that went public in the sector who are no lon- ger around. Does that put a tarnish on the industry for investors, or does it make investors skeptical at all? Goldfarb: It defi- nitely makes it tough. Student housing is much different than other industry types. It's more like a hotel or cruise ship compa- ny. When September 1 rolls up, you've either leased it or you haven't. The benefit with apart- ments is, if you didn't lease it on September 1, you can do it on September 2 or 3, etc. One, the industry is a lot more operationally intensive. Two, every year, there's some market that has too much supply. Three, you're never going to get those standout NOI growth years, just because that's the nature of it. At the same time you don't have the super negative years that you have in apartments but still, people always like the upside. While apartments put in better NOI growth, student housing doesn't have that. For portfolio managers, what tends to happen is people are comfortable with the sectors they grew up with. If student housing is something new or hasn't been that meaning- ful, then it tends to not get the same attention. It's different if you look at some of the other growth areas like data centers or cell tow- ers, areas that continue to grow and people can latch on to see why they're going to keep growing. When you look at student housing you see two companies that didn't work out, and you see minor issues like a weak pre-leas- ing season this past year and supply issues a few years ago, and it just weighs on investors' minds. They see an operationally intensive business that has had challenges, and they think, 'do I really want to spend time with it?' That's a hurdle. A few years ago, the indus- try was getting much better on the pre-leas- ing front. There was much more consistency. This past year, the weak pre-leasing definitely ALEXANDER GOLDFARB Managing Director, Equity Research‚ REITs, Sandler O'Neill + Partners

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