It’s no secret that it’s slim pickings these days when it comes to finding compelling CRE acquisition opportunities. And with several expected interest rate hikes on the horizon, investors are wise to pause before pulling the trigger on their next acquisition as its value could fall further in the months ahead. But catching a falling knife or timing the bottom is a fool’s errand and as an investor, you invest. It’s what you do. So where are today’s opportunities? It turns out one of the few bright spots is multifamily housing geared to college students but not all schools are benefitting equally. Rents for student housing are expected to grow at top research universities and schools in the five highest-earning athletics conferences for college football while those smaller schools with lesser name recognition are and will continue to suffer. One reason you can bet your sweet baby is that athletic scholarships are here to stay and not go the way of affirmative action.
Despite rising interest rates last year, student housing sales reached a record high of $22.9 billion, according to CBRE Group. Furthermore, though multifamily rents increased by only 2.3% during the twelve months that ended in May 2023, student housing rents have been growing by 9%, according to RealPage, an online firm that tracks the apartment market. Institutional real estate owner and investor, Blackstone, clearly agrees as they bet big—$12.8 billion big—on the acquisition of the student housing REIT, American Campus Communities (“ACC”). ACC has over 200 properties with more than 140,000 beds, according to its 2021 annual report. Even for Blackstone, this is a significant purchase best explained by the co-head of America’s acquisitions, Jacob Werner, who said that “in good times, people go to school…[and] in bad times, more people tend to go to school.” And at least anecdotally I concur with Werner’s views as we all know our fair share of “professional student” types who delay adulthood and the workforce as long as possible by staying in school or those who return to school when the job market offers little opportunity.
Other tailwinds for student housing include lack of financing for developers to increase supply and, at many schools, a dearth of sites both of which allow landlords to continue to raise rents. Even the pandemic couldn’t torpedo the value of student housing as students preferred to live near their college campuses rather than shack up with mom and dad despite attending classes virtually. But it is a tale of two markets out there with certain college campuses thriving financially with increasing student enrollment and other universities suffering from weakened demand and, as a result, are suboptimal for investment. So be careful, and as always, do your homework as luck tends to happen when preparation meets opportunity.
Inline XBRL Viewer, www.sec.gov/ix?doc=%2FArchives%2Fedgar%2Fdata%2F0001283630%2F000128363022000031%2Facc-20211231.htm. Accessed 7 July 2023.
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