Student Housing Business

MAY-JUN 2018

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

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MANAGEMENT May/June 2018 StudentHousingBusiness.com 54 hour anymore. Those guys can go out and make $25 per hour right now working 60 hours per week in construction if they can swing a ham- mer in a lot of tight construction markets. It's the same thing with good property and regional managers. The cost structure is going up across the board in terms of payroll, so it is difficult to walk in and see a pro forma that is projecting to cut payroll by 25 percent for no particular rea- son. Those are the biggest changes we've seen. The value-add is a bit harder to get; it's harder to find that extra little bit of juice. These B and C assets — your typical value-add deals — have been bid up to almost core pricing, which puts the squeeze on those underwriting metrics that everyone is looking for. It's hard to find double digit, cash-on-cash deals right off the bat that are returning an internal rate of return in the high teens. Petersen: Ari [Rosenblum], have you seen simi- lar trends? Ari Rosenblum: On the payroll side it has become difficult — I totally echo that. Finding qualified maintenance techs across the country has become very difficult at what was originally underwritten from a cost perspective. We're also finding, in our business and with our strat- egy, that it's a pretty healthy value-add market. We do an intensive value-add across the prop- erty, and in our experience, that's how we get the rent bumps. We've found, with the pricing tightness and the competition in the market- place right now, equity partners are trying to cut the capital expenditures down that you put in on a per-deal basis. In our experience, that doesn't work, but everyone is trying to do that to make their yields work, so that's certainly another area where there is a friction between capital and operator. Petersen: What about the infusion of overseas capital? Do you see it impacting those under- writing principals? And if it's to the negative, what do you think the sector should do about it? Rosenblum: There's obviously an influx of overseas capital — there's a lot of Chinese capi- tal, especially at this conference. There's Middle Eastern capital coming into the space as well. We've done a number of deals with foreign cap- ital. I think there is a misconception about some of the foreign capital, in as much that people feel that capital is really compressing yields, pushing up prices and that it's really 'dumb " The cost structure is going up across the board in terms of payroll, so it is difficult to walk in and see a pro forma that is projecting to cut payroll by 25 percent for no particular reason. — Grant Collard, CEO, Redstone Residential

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