Buy Student Housing for Downside Protection

Student housing is having a moment. A tight supply of student housing is putting upward pressure on rents—even more so than the tremendous rent growth in multifamily. But, the strong rent growth isn’t the only reason to buy student housing. The apartment niche is also more resilient in a downturn than multifamily, and as we get later in the cycle, downside protection is attractive to investors. Champion Real Estate Co. is actively investing in student housing assets near USC, and is very bullish on the sector.

“The student housing sector offers downside protection in a very tight multifamily market,” Garrett Champion, EVP with Champion Real Estate Co., tells GlobeSt.com. “Los Angeles in particular, provides a unique opportunity for investment in student housing because its shortage puts upward pressure on rents.  Students and their parents will also pay a premium to live within a half-mile of campus. The product type has proven to be more recession resilient compared to traditional multifamily as enrollment increases during economic downturns and predominantly wealthy parents provide the lease guarantees.”

Champion is focused on the Los Angeles and specifically USC markets. In fact, the firm recently purchased Victory on Ellendale, a 24-unit student housing property, for $12.45 million, and plans to invest another $2.2 million to upgrade the property. “The best opportunities are in core urban locations where there exists a combination of insufficient university provided beds and a market-rate housing crisis,” adds Champion. “Amidst a housing crisis, California has a lot of opportunities for student housing investment at both two-year and four-year schools.”

The firm has seen an increase in investment activity for student housing product, and this competition is driving cap rates down. “Competition for student housing product has increased across the board as evidenced by declining CAP rates.  Particularly around USC, there is limited product in the USC Security Patrol Area where students want to live,” Champion adds. “There are several groups often competing for the same properties, which forces everyone to get creative with their business plans.”

Despite this increase in competition, Champion is not straying from its core strategy. “Our strategy is always to buy properties in A+ locations.  This year was no different,” Champion says. “We have found a scarcity of quality up-scale housing options in these locations despite the demand from students and their willingness to pay a premium for it. At USC, we often see CAP rates for student housing much lower than the traditional multifamily product in the area.”