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Investors in the market for student housing properties would do well to study the college football scores: research from CBRE has found that student housing properties serving universities with elite football programs command higher prices and lower cap rates compared with student housing associated with other universities. Furthermore, that advantage is spreading beyond the Power 5 schools this year.
Cap rates for student housing assets at elite football universities are considerably lower than student housing at other universities, CBRE says, with the pricing differential 40+ basis points in the first half of 2019. Namely, at NCAA's Division I Power 5 universities (representing the top five football conferences: Atlantic Coast, Big Ten, Big 12, Pac-12 and Southeastern), student housing acquisitions in the first half of the year had an average 5.40% cap rate (or 43 basis points below non-Division I schools) and captured a disproportionate share of the total investment volume for the first half of the year—which was nearly half of all transactions.
Similarly, cap rates for student housing assets at Division I non-Power 5 universities averaged 5.43% in the first half of 2019, also well below the 5.83% average for non-Division I universities, CBRE said.
The reasons is simple: Football is a very effective marketing tool for universities and creates value for student housing properties, as CBRE noted. It noted that "The strong football programs in Division I schools, and particularly in the Power 5 conferences, create national recognition and prestige. In turn, these 'football schools' recruit more students, insuring stable to rising enrollments." Not surprisingly this in turn gives investors confidence in the performance of student housing assets at these schools.
Beyond the Power 5
This year, the football advantage is spreading beyond Power 5 universities, CBRE noted. In previous surveys, cap rates for student housing assets linked to Power 5 universities had lower cap rates than other Division I schools, but this year, pricing has been almost the same. "Many non-Power 5 Division I universities have football programs gaining significant national attention along with rapidly growing enrollments," CBRE said. "Schools such as the University of Central Florida, University of South Florida, University of Cincinnati, University of Houston, Boise State, University of Memphis and San Diego State are prime examples."
Higher yield and expanded investment opportunities is also driving capital to many non-Power 5 Division I schools. CBRE reported that cap rates for student housing associated with Division I non-Power 5 universities tightened the most among the three major categories, falling 27 basis points from 2018's average.
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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.
