LUBBOCK, TX-McKinney Properties Inc. has re-entered the Texas student housing market, paying $16.25 million for U Lofts, a 299-unit property near Texas Tech University. The mid-rise property also marks the Pittsburgh, PA-based student housing owner’s first acquisition here.
“We highly value locations that are within walking distance to campus, and U Lofts is possibly the best located student housing property at Texas Tech University,” says Nathan Lutz, director of acquisitions for McKinney Properties. “The school has demonstrated continued enrollment growth over the last few years and has projected enrollment growth for the next five years. In addition, [Tech] has continued to invest in the growth of its campus and facilities to support its enrollment growth.”
Built in 1968 and renovated between 2008 and 2010, U Lofts contains 334 bedrooms in 144,000 square feet. Situated on 2.75 acres across the street from the university, it contains 11,000 square feet of commercial space and a 500-space parking garage. The seven-story property also has a cell phone tower, which generates additional income.
McKinney Properties bought the property out of foreclosure from Bank Atlantic and M&I Bank. It was previously owned by a partnership comprised of Tallahassee, FL-based Student Housing Solutions and Gameday Centers Southeastern LLC. The banks took back the property, which was formerly known as University Plaza, in fall 2009.
The Student Housing Solutions JV had planned to operate U Lofts as 50% student housing and 50% gameday condos – a concept popular in Southeast college markets where high-profile alumni buy condos to accommodate their weekend visits for football and basketball games. The JV invested several million dollars to upgrade and renovate the property, but the plan for gameday condos failed, and the property transitioned to 100% student housing.
At the time of acquisition, U Lofts’ student housing portion was 98% occupied, and the retail portion was 50% leased. “The primary upside is rent growth due to the property’s location,” Lutz tells GlobeSt.com. “In addition there is the ability to add more beds or occupants and possibly rent by the bed. There is also the ability charge for parking to existing residents and to outside third parties. Lastly is the opportunity to rent out the vacant retail space.”
McKinney Properties plans to renovate the common area lobbies and upgrade the amenities. “We also plan to add metered parking for outside third parties and improve the vacant retail space to rentable condition,” Lutz says.
McKinney Properties was one of 15 potential buyers interested in U Lofts. “As a mid-rise property, U Lofts is a little bit different for student housing in the Lubbock market,” says Dorothy Jackman, a vice president investments with Marcus & Millichap.
Jackman represented the sellers, along with Travis Prince, a senior associate in the firm’s Tampa office, and Peter Katz, a senior vice president of investments in Marcus & Millichap’s Phoenix office. Jackman and Prince also represented McKinney Properties, while Mike Harris, a member of the Tampa team from the firm’s Special Asset Services division, provided consultation, and Nick Fluellen, an associate vice president in Marcus & Millichap’s Dallas office, also provided representation.
Jackman tells GlobeSt.com that McKinney Properties won the deal because the company “had a lot of expertise in student housing properties, specifically mid-rise.” She adds: “We had confidence they knew how to value the property properly and that they would be able to close the deal. They are active in the market and have good relationship with lenders.”
To facilitate the purchase, McKinney Properties obtained a floating-rate, balance sheet loan that was arranged internally and provided through Wells Fargo. In addition to U Lofts, McKinney Properties also acquired a student housing property at Mississippi State University. Together, the two deals totaled approximately $40 million and represented over 1,000 beds.
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