Traditional participants in this asset class are meeting a slew of new competitors, according to JLL’s Teddy Leatherman.
Last year proved to be one of the most active years for student housing investment activity, particularly over the third and fourth quarters of 2021. Based on current market activity and investor interest, 2022 is poised to be even stronger.
While the return of students to colleges and universities is providing a boost to the student housing sector, strong fundamentals and returns are playing a much greater role in this record-setting activity.
Prior to the pandemic, 2020 was expected to be one of the largest transaction years in history for student housing investment; however, COVID-19 sidelined much of the activity due, in part, to the fear that remote learning would negatively impact the sector. Despite the many obstacles, the asset class performed extremely well, as students opted to stay in on- and off-campus housing near friends, which kept rent collections high.
At the beginning of 2020, the cap rate spread between student housing and conventional multi-housing was about 25 basis points. By fourth quarter of that same year, the rate increased to roughly 80 basis points. Given that spread, student housing is not only garnering interest from traditional investment groups, but from new investor pools seeking to enter the market. These new entrants range from conventional multi-housing investors chasing yield to experienced commercial real estate investors who have historically focused on other product types and are now seeking an opportunity to invest here.
According to JLL research, the total U.S. transaction volume for student housing in 2020 was $6.25 billion, with only $1.68 billion of that recorded within the first half of the year. During the first three quarters of 2021, the market witnessed $4.85 billion in transactions, with $2.52 billion in the first half of the year. While numbers are not yet available, fourth quarter 2021 is expected finish out the year incredibly strong.
Among some of the notable recent transactions include:
- Blackstone Real Estate Income Trust’s purchase of a majority stake in a portfolio of eight student housing properties with 5,416 beds for $784 million.
- The $42.2 million sale of a 292-unit, 524-bed portfolio of student housing communities located just a few blocks from the campus of Michigan State University in East Lansing, Mich.
- The sale and financing for a four-property, 245-bed student housing portfolio at Clemson University in Clemson, S.C.
- The $20.1 million sale of Edge of Kutztown, a 184-unit/552-bed student housing community located near Kutztown University in Kutztown, Penn.
In 2019 and 2020, just 2.3 percent and 2.2 percent of stock was delivered, respectively, proving that COVID-19 had a very minimal impact on student housing deliveries. The capital markets have never been stronger, and there’s more equity and debt chasing new developments and cap rates have compressed. As a result, despite increasing construction costs, projects are moving forward.
Recently, Greystar and Star American obtained two construction loans for student housing developments—Union on Broadway at the University of Oregon and Lakeview at the University of Washington. Fountain Residential Partners also secured joint venture equity for five student housing projects, located at UNC Charlotte, Clemson University, Louisiana State University, Kennesaw State and University of Arkansas.
In the past 12 months, there has been a tremendous amount of interest in student-housing opportunities proximate to Tier 1 universities as the asset class continues to be extremely resilient. At the same time, we are seeing non-traditional student investors acquiring student assets at Tier 2 and Tier 3 colleges as they provide an attractive basis and strong yield compared to other asset classes.
Based on JLL’s student housing team’s current BOV and RFP volume, 2022 should prove to be one for the books.
Teddy Leatherman is a senior director in the Dallas office of JLL Capital Markets, Americas and leads the Dallas branch of the National Student Housing Capital Markets business.
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