Exterior of student housing property

AUSTIN, TX—American Campus Communities Inc. said Monday it had agreed to recapitalize and ultimately acquire a portfolio from affiliates of Core Spaces and DRW Real Estate Investments. The $590.6-million deal encompasses four existing student housing properties—two of which are slated to open this fall—and three that are under development, and includes an exclusive option for ACC to acquire a 248-bed property in Seattle. It comprises roughly a third of Core Spaces' current portfolio of existing and development properties.

“Core Spaces and DRW have developed some of the finest student housing properties in the country,” says Bill Bayless, ACC's CEO. “The properties we have strategically selected in this portfolio are located in Power-5 conference and state flagship university markets that meet the highest levels of our investment criteria of differentiated products in close proximity to campus in submarkets with high barriers to entry. With the implementation of our operating platform across the portfolio, we should achieve meaningful accretion in asset value as well as additional operational efficiencies within the five markets where we have existing properties.”

With an average age of less than a year, the properties span Chicago-based Core Spaces' brands, and average 0.2 miles' distance from their respective campuses. Price per bed is $156,408, based on 3,776 beds, according to an investor presentation.

Included in the deal are the 513-bed Hub Eugene, near the University of Oregon in Eugene, OR; and State, a 665-bed property adjacent to the University of Colorado in Fort Collins, CO, both existing properties which ACC acquired in August for $146.1 million. The James will open this fall with 850 beds two blocks away from the University of Wisconsin in Madison, WI, while Hub U District Seattle, also coming on line for the fall semester, would expand ACC's presence in the University of Washington market.

ACC is acquiring an initial interest in both the Madison and Seattle properties through a joint venture with Core Spaces and DRW for $135.7 million. The remaining interest in both assets is subject to further purchase options exercisable in the fourth quarter of 2019 for approximately $68.9 million, although the final price will be determined by fair market value.

Currently under development for fall 2018 delivery are Hub Ann Arbor, Hub West Lafayette and Hub Flagstaff, totaling 1,500 beds. They're located near the University of Michigan, Purdue University and Northern Arizona University, respectively. All are markets in which ACC has an extensive history, and the REIT has made an initial investment of $24.2 million through a JV with Core Spaces and DRW. An additional $130.6 million will be paid upon delivery of the assets, and ACC will acquire the remaining interests in Q3 '19.

With closing and funding events scheduled to take place over the next two years, ACC plans to fund a substantial portion of the portfolio deal through monetization of existing core assets, either through JVs or dispositions. After $7.9 million of up-front capital improvements, the portfolio targets a stabilized cap rate of 5.4% nominal and 5.2% economic for the 2019-2020 academic year.

Separately, ACC on Monday provided a Q3 update. As of Sept. 24, its same-store wholly-owned portfolio was 96.6% leased compared to 97.2% in the year-ago period, with a 2.9% projected rental rate increase over in-place rents. “While the results for 57 of our 60 same-store markets exceeded our expectations, softness in three markets caused us to fall short of our leasing expectations,” Bayless says, citing “challenging conditions” at Texas Tech, the University of Illinois and the Rochester Institute of Technology.

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.

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