Student Housing Still Way Behind Demand
If the housing market was a baseball game, American Campus Communities CEO Bill Bayless would say student housing was in the bottom of the fourth inning.
That is because, unlike other commercial real estate sectors, student housing has yet to tap its fullest potential. New construction of student-only housing since the 1990s, now called "purpose driven" in the industry, has met only about 20% of the enrollment growth in the last two decades.
Add to that the market for replacement student housing both on and off campus — and especially those units needed to replace aging product — and the fundamentals of the student housing game look good, Bayless said at BASH, Bisnow's annual student housing conference.
This is the only market where a 96.6% lease renewal rate is considered something of a disappointment to investors, said Bayless, whose company is the largest owner-operator of student housing in the country. Bayless began his career with the overhaul of Dobie Center in Austin and currently owns many of the newer student housing projects in West Campus: 26 West, Crest at Pearl, The Block and Callaway House.
"Want to see why people, globally, are attracted to invest in student housing?" Bayless asked. "Even in a down year, we're 230 basis points over last year's value. Numbers like that would be astounding in any other sector."
The latest numbers out of Axiometrics show 46,000 student beds should be delivered nationally in fall 2018, which is slightly up from fall 2017. Some beds, like those at Texas A&M University, are on campus but delivered through public-private partnerships. Texas A&M has delivered just over 2,400 beds since 2011. The only campus to deliver more was Florida State University.
"The industry continues to have tailwinds, excellent fundamentals," Bayless said. "And we're in the very early stages of modernization. So I would predict we'll see this continue for another decade to come."
American Campus Communities, with 3,700 employees, manages upward of 200 student housing projects. The company's portfolio is pegged at just south of $10B. That portfolio may be large, but it also fills a tiny niche. Off-campus housing only works in the right location at the right price point.
If "purpose-driven" is one driving term in student housing, the other is "pedestrian-oriented." That is why American Campus Communities pitched its recent acquisition of Core Properties, which closed in late September, by the average distance of the Core portfolio from campus: 0.2 miles.
"That particular portfolio was one that absolutely met every aspect of our investment criteria, a diverse portfolio," Bayless said. "We're focused on large Tier 1 institutions and Power Five football schools, Tier 1 universities. Most of these were right across the street from campus."
Last year was the biggest year, to date, for student housing, with $5B in new housing product. American Campus Communities' pipeline alone is expected to deliver $1.9B in new student housing through 2019 and beyond, Bayless said.
The $590M Core portfolio was a mix of existing assets and to-be-built pre-sales. That helped American Campus Communities leverage the best financing options. The timing of the purchase helped it have some input into the design and material specifications of the product.
"We've been very fortunate with Core Space and others," Bayless said. "We would very much prefer to buy something that meets our long-term specifications. Getting involved early enough to have an impact is something that is very exciting to us."