Perhaps nowhere is student housing’s strength more evident than in
enrollment growth — the primary driver of this segment’s demand. The
National Multi Housing Council (NMHC) published a white paper this
past June examining student housing’s recession-resistant nature. In
its analysis of enrollment data at 56 universities nationwide, the
NMHC found that freshman applications between 2008
and 2010 increased by an average of 20 percent.
Further, the National Center for Education Statistics projected that enrollment in post-sec-ondary degree-granting institutions will
increase to 23 million students by 2020,
a 13 percent increase from 2009.
Student-housing demand must, of
course, be met with healthy supply.
Because of the captive audience
traits of student housing, supply must be monitored carefully.
Because the student-housing
leasing cycle begins and ends in
August, there is little opportunity
for move-ins during the academic
year. Supply-and-demand imbalances thus impact the market in
the form of years, not months. It is
common for the absorption of one
or two large properties to affect an
entire market’s supply-and-demand
Although student housing has been
recognized as an attractive risk-adjusted,
countercyclical alternative-investment class,
the inherent challenges are manifested in the
form of capitalization rates. Student housing generally trades at a 100-basis-point (bps) discount to the
conventional market rate. Contrary to the popular belief that the discount stems from a party-like atmosphere, the reasons are more subtle.
Brokers who do their homework on the market will
more likely find success when working with investors
or owners and operators to fund deals.
Much like the conventional side of the business, student-housing construction remains at historically low levels.
Although the market for permanent debt has largely re-covered, the market for construction loans has not. Most
developers have neither the balance sheets required to
obtain a construction loan nor the equity to fund projects. The result is that only the best-capitalized developers can continue building new projects.
Modest new-construction starts, coupled with in-
creasing demand, have led to an inflow of capital into
student housing. Research firm Real Capital Analytics (RCA) reports that
the average cap rate from the second quarter of 2010 through this past
second quarter declined 68 bps from the same period the previous year.
Cap-rate compression for student housing has outstripped that of con-
ventional apartments; the decline in conventional cap rates in the
same period was only 45 bps.
Oliver Swan is managing
partner and co-founder of
Treesdale Real Estate Partners
LLC, a value-oriented real
estate investment fund
focused on the acquisition of
nationwide. Prior to
co-founding Treesdale Real
Estate Partners, Swan served
as the chief investment
officer of a New York-based
student-housing owner and
operator. He has a bachelor’s
degree in finance from New
York University’s Stern
School of Business. Reach
him at (212) 299-5529 or