LAGUNA BEACH, CA—A flood of new sources for investment-grade capital has entered the student-housing sector in the last five to seven years, CA Ventures' COO JJ Smith tells GlobeSt.com. We spoke with Smith exclusively about student-housing finance as he prepares to speak on the panel "Student Housing: A New Frontier" during IMN's Winter Forum on Real Estate Opportunity and Private-Fund Investing here later this month.

GlobeSt.com: What trends are you noticing in student-housing finance?

Smith: The student-housing sector is like a newly minted, college graduate about to embark into the "real world." Since the sector's inception, it has always been viewed as the younger sibling of traditional multifamily and fought feverishly for the past few years to become an institutional asset class.  

As the sector has matured, really over the past five to seven years, the exit cap-rate spread between student and multifamily has tightened, which has opened up a flood of new investment-grade capital into the sector. This capital now includes private equity, foreign capital, sovereign funds, pension funds and life companies chasing yield. The sector has proved to be rather recession resilient in the downturns since a lack of jobs led to enrollment growth, which in turn led to higher occupancy rates and substantial NOI growth.

GlobeSt.com: What are the main issues this sector of the industry is facing?

Smith: A few of the main issues the sector faces includes the declining college-age population, the ever-rising cost of attending a four-year college, interest rates and their effect on cap rates, the rising cost of construction, the lack of available infill land-development sites and, probably most importantly, the threat of overbuilding. CA Ventures feverishly scrutinizes the supply-and-demand characteristics of each market we develop in with an eye for positive-growth enrollment projections, high barrier-to-entry markets, fewer available land sites and perhaps more-challenging zoning approvals.

GlobeSt.com: As construction costs rise, how will the student-housing sector be affected, and what can be done to lower costs?

Smith: The cost of construction continues to make deals more challenging to pencil across the country. Some methods we are undertaking to combat the rising costs of construction include potentially self-constructing developments by bringing services in-house; developing national vendor relationships and purchasing agreements; creating standardization of products, fixtures and finishes; as well as looking toward new and innovative construction methods that decrease the overall duration of construction.

GlobeSt.com: What else should our readers know about student housing?

Smith:  The days of the cinderblock dorms with communal bathrooms down the hall are long in the rearview mirror. By and large, today's students are seeking newly constructed, quality-built, modern furnished layouts with bed-to-bath parity, large walk-in closets, stainless-steel appliances with quartz countertops and highly amenitized common spaces equipped with on-site fitness centers, yoga and spinning studios, high-tech study lounges and social gaming areas. Additionally, you have seen properties succeed based on the "amenity retail" that is complimented at the ground level of the properties, whether it be quick-serve restaurants, grocery and convenience stores or fitness-type users.