Multifamily Investors Look to Student Housing as an Attractive Alternative

The pandemic impact on higher education, with many universities and colleges shifting to remote learning and keeping students from coming to campus, was hard on the student housing market. Now that things are changing as people return to campus, the investment outlook is much improved.

The first three quarters of 2021 saw $4.85 billion in transactions, according to JLL’s capital markets group. That compares to $6.25 billion for all of 2020. The company expects the fourth quarter of this year to be extremely busy, as the JLL Capital Markets national student housing team over the last four weeks conducted more than $1.5 billion in broker opinion values for student housing assets.

“With how compressed multi-housing cap rates have become, investors are focusing on yield,” said senior director Teddy Leatherman in prepared remarks. “Right now, we are seeing a spread of 80 basis points between student housing and multi-housing cap rates, and we are seeing more multi-housing investors looking to buy into the student housing market. This has made our sector more competitive.”

For example, Township Capital just announced that it was partnering with The Preiss Company to recapitalize a student housing property in Greenville, NC.

Investments into the sector had dropped 12% compared to pre-crisis levels and some estimates expected mixed results this fall. But the National Multifamily Housing Council had expected continued growth from the pressure of demographics, with student housing expanding at an annual increase of 0.8% through 2031.

“Some of these new entrants are conventional multi-housing investors and some are experienced commercial real estate investors who have historically focused on other product types but, because of how resilient student housing has proven to be historically, see this as an opportunity to invest,” said JLL senior director Stewart Hayes. “In some of our recent assignments, new entrants have totaled up to half of bidders.”

Foreign capital and institutions had been relatively inactive during 2020, but that trend has reversed, and the money from other countries is again flowing into the space again.

“The student housing sector did experience a flight to quality during the pandemic and investors were focused on core assets at Tier I universities,” Leatherman added. “However, Tier II and III markets have also been pricing aggressively as many conventional multi-housing investors are interested in those assets given the yield premium over conventional multi-housing.”