NEW YORK CITY–When Berkadia's student housing team shut the doors to their offices on Thursday night of June 8, they could tally up 89 transaction they had closed in the sector, totaling slightly less than $2 billion. On the next day, they were expecting to close transaction no. 90, pushing the group's total over $2 billion. Assuming the transaction went through, Berkadia has added another notch to its capital markets portfolio for this rapidly-growing niche.
The trade is a substantial student housing asset at the University of Washington in Seattle, according to Berkadia's Managing Director Kevin Larimer and Associate Director Greg Gonzalez, both from the student housing team.
Larimer and Gonzalez, who spoke with GlobeSt.com shortly before the deal was set to close, declined to provide specific details about the transaction other than the following: The property is trading north of $110 million and both foreign and domestic sources pursued the transaction, in part because of the infill nature of Seattle's market. The purchase price is “an exciting price per bed and at a low cap rate,” Larimer says.
Foreign Buyers, Student Housing Groups
The deal speaks to a number of trends in this part of the market, such as the strong interest by foreign capital in US assets — although as it happened, a domestic source won the deal, according to Larimer.
There is a huge inflow of capital, both foreign and domestic right now, into student housing,” he says. “It is mostly attributable to the performance of the sector and the natural recession-resistant nature of student housing.”
When the US economy hits a bad spot, enrollment grows as both undergraduates and graduate students return to school or stay there to avoid a weak job market and to improve their skills, he explains.
Foreign capital is attracted to student housing because it is an extension of the multifamily asset class, Larimer continues. Indeed, recently Mapletree Investments of Singapore acquired a portfolio from Kayne Anderson Real Estate Advisors for $1.6 billion that consisted of eight student-housing assets and four apartment properties.
In another example, earlier this Spring Scion Student Communities, a JV between the Scion Group, Canada Pension Plan Investment Board and Singapore's GIC, acquired three separate US student housing portfolios for a total of $1.6 billion.
“The US apartment/student housing sector is widely regarded as a safe place,” Larimer says. “It produces yield and can serve as a replacement for domestic and foreign funds fixed-income allocations.”
Read Scion JV Buys 3 Student Housing Portfolios for $1.6B
Berkadia's newest transaction also highlights the aggressiveness by which US student housing-focused buyers are willing to compete for deals. There were a larger-than-expected number of student housing groups targeting this deal, according to Gonzalez. “Almost to a man, the companies that submitted an LOI on the asset, except one, had some student housing in their portfolio and planned to continue to operate the asset as student housing project.”
Strong Fundamentals
Finally, Berkadia's deal highlights the strong fundamentals in the student housing market right now, particularly on the West Coast, per the latest quarterly report by Berkadia, which looks at pre-leasing and rents for next school year.
As of the end of April, pre-leasing across the country was at 68.1% and rates have seen a 2.4% year over year growth, averaging $652 per bed nationwide.
Regionally, the West Coast is currently seeing the highest average rent-per-bed, at $841 per bed, while the Northeast, which is pricing at $823 per bed, is leasing at the fastest pace.
The Southeast is the least expensive place for student housing, averaging about $596 per bed.
The trade is a substantial student housing asset at the University of Washington in Seattle, according to Berkadia's Managing Director Kevin Larimer and Associate Director Greg Gonzalez, both from the student housing team.
Larimer and Gonzalez, who spoke with GlobeSt.com shortly before the deal was set to close, declined to provide specific details about the transaction other than the following: The property is trading north of $110 million and both foreign and domestic sources pursued the transaction, in part because of the infill nature of Seattle's market. The purchase price is “an exciting price per bed and at a low cap rate,” Larimer says.
Foreign Buyers, Student Housing Groups
The deal speaks to a number of trends in this part of the market, such as the strong interest by foreign capital in US assets — although as it happened, a domestic source won the deal, according to Larimer.
There is a huge inflow of capital, both foreign and domestic right now, into student housing,” he says. “It is mostly attributable to the performance of the sector and the natural recession-resistant nature of student housing.”
When the US economy hits a bad spot, enrollment grows as both undergraduates and graduate students return to school or stay there to avoid a weak job market and to improve their skills, he explains.
Foreign capital is attracted to student housing because it is an extension of the multifamily asset class, Larimer continues. Indeed, recently Mapletree Investments of Singapore acquired a portfolio from Kayne Anderson Real Estate Advisors for $1.6 billion that consisted of eight student-housing assets and four apartment properties.
In another example, earlier this Spring Scion Student Communities, a JV between the Scion Group, Canada Pension Plan Investment Board and Singapore's GIC, acquired three separate US student housing portfolios for a total of $1.6 billion.
“The US apartment/student housing sector is widely regarded as a safe place,” Larimer says. “It produces yield and can serve as a replacement for domestic and foreign funds fixed-income allocations.”
Read Scion JV Buys 3 Student Housing Portfolios for $1.6B
Berkadia's newest transaction also highlights the aggressiveness by which US student housing-focused buyers are willing to compete for deals. There were a larger-than-expected number of student housing groups targeting this deal, according to Gonzalez. “Almost to a man, the companies that submitted an LOI on the asset, except one, had some student housing in their portfolio and planned to continue to operate the asset as student housing project.”
Strong Fundamentals
Finally, Berkadia's deal highlights the strong fundamentals in the student housing market right now, particularly on the West Coast, per the latest quarterly report by Berkadia, which looks at pre-leasing and rents for next school year.
As of the end of April, pre-leasing across the country was at 68.1% and rates have seen a 2.4% year over year growth, averaging $652 per bed nationwide.
Regionally, the West Coast is currently seeing the highest average rent-per-bed, at $841 per bed, while the Northeast, which is pricing at $823 per bed, is leasing at the fastest pace.
The Southeast is the least expensive place for student housing, averaging about $596 per bed.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
