Student Housing: Where the Big Guns Go Niche-y
Want to get a jump-start on upcoming deals? Meet the major Chicago players at one of our upcoming events!
Student housing has exploded in the last several years as increased institutional equity flows into the sector. We’re excited to discuss that growth, and what it means for industry mainstays and emerging player at Bisnow’s 3rd Annual Chicago Student Housing Summit on Nov. 19, starting at 7AM.
The Scion Group is one of the largest owner/operators of purpose-built student housing around the country with 18,000 beds. CIO Avi Lewittes, one of our panelists, says a number of macro factors have come together to make student housing an attractive investment: historic liquidity in the capital markets, low interest rates, and increased institutional equity interest. The big guns are going niche-y because it’s tougher to generate yield with the more conventional food groups, he says, making operationally intensive assets (with more perceived risk) a stronger play. But we’ve seen inconsistent performance across the sector over the past couple years, he says.
Scion's 960-bed The Avenue West Lafayette at Purdue University, above. Public student housing REITs (like ACC and EDR) enjoyed very strong valuations a few years back that led to significant acquisition activity, Avi tells us. That spurred a robust development pipeline of high-end student housing product, and now developers and merchant builders are having a tougher time finding that university student body demand, and selling at the premium price point needed to generate returns (given REITs have pumped the breaks on acquisitions). That’s where Scion comes in, Avi says, buying these stranded assets at a discount to replacement cost, driving cash flow, and doing some operational repositioning and physical renovations where necessary.
Scion (president Robert Bronstein, above) also benefits from ACC and EDR’s dispositions, he says, as they’ll selectively acquire the REITs' older product with a similar repositioning strategy (they’ve done a dozen of these deals). But location is critical. The firm is only interested in large, public, flagship state universities (with an average enrollment of 33,000 students), and its portfolio is focused on the Southeast, Midwest, Texas, and other western markets. Scion has deployed $350M-plus in the sector, acquiring over 10,000 beds in the last couple years, Avi says, which is even more acquisition activity than the REITs. (Though they’re focused on development and on-campus collaborations.)
The key to student housing success is a captive operating platform, Avi says, which is critical given each asset’s operational intensity. Scion keeps properties fresh with additions like retail and Zipcars, he says, along with philanthropic opportunities and new business incubators on-site. Avi’s other secret to success: define location differently. Not every student cares about being walking distance to campus. It depends on the campus, culture, and region of the country, because often students are more interested in proximity to retail, bars, or poolside social interaction, he points out. A former investment banker, Avi loves running, cycling, and horsing around with the kids. To hear more, please join us on Nov. 19 for Bisnow’s 3rd Annual Chicago Student Housing Summit, starting at 7AM. (Sign up here!)