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January 3, 2014
Three Predictions For 2014
Go big, go small, or go home. Students like a life of extremes (think library all-nighter or toga party) and so will the student housing market in 2014. CA Student Living principal JJ Smith tells us what you'll see:
1) Micro opps in macro markets
There's been talk of overbuilding, but CA Student Living still sees promise with Main and Main locations at large state schools. They stick with flagship institutions like the University of Tennessee or Purdue "that will always be there," JJ says, avoiding second-tier schools and community college campuses. (If the show Community is any indication, those schools can disappear from the schedule at any moment.) One way to mitigate lease-up risk in the more oversupplied markets is downsizing communities, with an ideal size now between 300 and 400 beds. And being conscious of students' budgets helps, especially given increases in interest rates on student loans, he adds.
2) Smaller units, larger amenity spaces
Well-located projects can have smaller units than something several miles out from campus, JJ tells us. While most developers have a one-to-one bed/bath ratio, properties four to six blocks from the main quad have gone down significantly, with some incorporating two baths for every four beds. In Seattle, CA is even testing 325 SF micro-units, with adaptable furniture like Murphy beds (above). While it all starts with location, developers then focus on high-end design and finishes, "making a dollar look like two." (Optical illusions aren't just for street performers anymore.) There's heavy demand for on-site fitness and business centers, study lounges, and attentive property management, he says.
3) Competition and rising prices
Headwinds that will affect project costs and investment sales: REITs' performance, rising interest rates and cap rates, and rebounding construction costs (lumber and steel have risen 10-12% over the last 18 months), JJ says. With new players entering the market, CA is also seeing more competition on site acquisitions, driving up the firm's basis at infill sites and pushing them to react more quickly. CA has 23 projects on 16 campuses (5,000 beds) slated to deliver by 2015: nine are under construction (398-bed Chicago project called Inifinite pictured) and will deliver this August, and 14 are in the approval/entitlement phase for delivery the following year.
SAN ANTONIO: Truck, Yeah!
Having the best student housing project is no good if potential residents never hear about it. Carter is taking a new approach to the problem for Tetro Student Village, which serves UTSA. We snapped project manager Lauren Guthrie, leasing manager Kelsey Ring, and leasing agent Madison Lathon at the community's new mobile leasing center. It's a 14' food truck, and Carter VP Dave Nelson tells us "wherever it goes, it can stop and throw a party." (Like Pauly Shore.) It blasts music and has games and snacks on board as well as an interactive tour of the 590-bed community and iPads for students to sign leases immediately.
Something is working--the site looked like this when we were there right before Christmas, and the community is already over 20% preleased. The truck has been up and running for a few weeks—the ladies tell us its most interesting location so far was a competitor's community, and its most unique experience was giving a girl a ride home from campus. They tell us the truck imparts that Carter is willing to be different and push limits to please residents (a real plus, since students tell them they're dissatisfied by lack of innovation in the market now).
BOSTON: Rising Capital Costs Bring More Partnerships
As certain as your annual resolution to work out evaporates by next week, the cost of capital for student housing will rise, says EdR's Jeffrey Resetco (left, with ADDInc's BK Boley at the recent Bisnow Boston Student Housing Summit). Jeffrey says some colleges use a third-party ownerto be free of huge debts but still see a related revenue stream, including student fees. EdR is working with the University of Kentucky in Lexington to help provide approximately 8,000 student beds (and has delivered nearly 4,000 so far). And BK says there's an enormous need and opportunity to develop housing for grad students. But for privately developed dorms, it's tough to make the numbers work unless the college owns the land.
A Bisnow Education Video!
We're often asked after our events, what's a cap rate, a 1031 exchange, a REIT, mezz debt, NOI, CMBS, loan-to-value, "core," etc. Well, we're the wrong people to ask, because we don't know either. BUT, we know someone who does! So we made a video. It's 90 minutes, broken into 19 different 5-minute segments on these different issues. Never be intimidated again! And dazzle the world with your use of highfalutin' acronyms.
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