Today's students, even at the community college level, have more living options on and near campus than ever before, with a limited number of builders providing such complexes. Factor in larger numbers of students each year, including those taking longer to graduate, and the prospects for continued development of student housing look bright enough to make the dean's list.
"The 16-to-24 age curve is increasing and will continue for the next several years," observes Brent Little, executive VP of Place Properties LLC, an Atlanta-based student housing developer. "Anything that happens to the economy doesn't change that fact."
Place Properties owns 30 student apartment complexes in 14 states, most recently opening a 420-bed facility in Tampa, FL, under an agreement with Hillsborough Community College. Little says an advantage for learning institutions to work with private developers is that it doesn't burden their own bonding capacity in providing living quarters for their student populations.
"That's something schools have more of an appetite for," Little tells GlobeSt.com, noting that more public colleges are likely to turn to developers as they face ever-tightening state budgets. There's also the likelihood that some students might want to extend their coursework during the downturn: "When you have a recessionary job market, there isn't a lot of incentive to leave school," he says.
The prospects of higher and longer education are boosting profits for other student housing developers. For example, Education Realty Trust Inc., a Memphis, TN-based REIT with 68 complexes in 21 states, earlier this week reported 14% first-quarter revenue growth at $34.3 million as its net income, improved to $900,000 after posting a loss the first three months of last year.
"The strength of this asset class to perform throughout all types of economic cycles is based on the desire of students and their families to obtain a college education," says Paul Bower, Education Realty's chairman and CEO. He adds that revenue from leasing and third-party development and management services continues to insulate the REIT from the soft economic cycle.
Industry analysts predict the current student-housing environment offers opportunities for earnings growth through acquisition of properties built by local or regional developers. However, they point out that the competition for such assets is increasing amid shrinking cap rates.
"Student housing remains a highly fragmented industry as no one owner or group of owners holds a dominant position in the market," Paula Poskon of R.W. Baird & Co. states in a research report. She notes that the market for private student-housing developers may be adversely affected if universities decide to pursue growth in the market for themselves, especially with the help of government funding and incentives.
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