An Amenities War May Not Be The Best Student Housing Strategy
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Press coverage of student housing typically focuses on the glitziest new trophy properties, complexes that increasingly provide residents with amenities once thought suitable for top-line resorts. That is understandable, as these buildings can sell for eye-popping amounts.
But some developers and school administrators have begun to reconsider the emphasis on amenities, and say paying more attention to mundane but necessary features, ones that help students succeed both academically and socially, will more effectively sustain occupancy levels and still increase values.
Jason Schwartz, managing principal and head of student housing for Blue Vista Capital Management, said he recently visited a new student housing complex at a major school in Arizona, and noticed it had an entire room dedicated to a skiing simulator, an amenity he estimates could have cost $200K. He asked how often students used the room.
“I was told that once a month somebody comes in and plays with it,” he said.
“There is the feeling that many people have gone too far in the amenities war, and lost something that is increasingly important to young people today, and that is building a community,” said Richard Mason, the University of Chicago's assistant vice president for campus life and associate dean.
Both Schwartz and Mason will speak at Bisnow’s Chicago Higher Education Summit in Chicago on April 30.
Schwartz recognizes that there are sometimes good reasons for stocking a new student property with shiny amenities. Construction costs keep escalating, which forces up rental rates, and many developers feel they can only justify high rents if their assets have a wow factor.
Blue Vista now concentrates on providing three key qualities, Schwartz said. First, student communities need an abundance of open amenity spaces where residents can socialize. Second, many residents say they prefer living in buildings with a variety of study rooms, which some developers hesitate to provide, since it takes up space without generating revenue.
“Study spaces have always been needed, of course, but five years ago we as an industry did not understand they could make or break leasing decisions,” he said.
That means outfitting study rooms with amenities is money well-spent, he said. Blue Vista provides its spaces with large-screen TV hookups to assist student groups creating presentations, along with a large number of whiteboards and WiFi connections.
Finally, keeping fit is an essential part of most modern students’ lifestyle, according to Schwartz, so Blue Vista feels it is worthwhile to spend significant amounts on exercise rooms.
“We’ll spend less money on a game room so we can spend more money on the gym,” he said.
Properties geared to the middle-market can be very lucrative.
In 2009, before the amenities war in student housing kicked off, Blue Vista transformed a vintage tailoring factory near the University of Illinois at Chicago campus into Tailor Lofts, a 135-room student housing property that provides residents with complimentary cable and WiFi, a 24-hour on-site fitness center, a game room, a study lounge and a computer lab.
The building averaged 97% occupancy over the last 10 years and saw annual rent bumps between 3% and 5%, Schwartz said.
In February, the company sold it for $60M, according to Cook County property records.
The University of Chicago revamped its undergraduate student housing in the past decade, Mason said — instead of gleaming amenities, it now emphasizes architecture and design that help students interact.
The school decided to build community bathrooms in its set of new dorms, for example, rather than private ones.
“When you brush your teeth next to someone every day, that breaks down barriers to communication, and all of these little interactions act as a glue that helps develop and bind together a community,” he said.
In 2009, the university opened Renee Granville-Grossman Residential Commons, a pair of student housing high-rises with a total of 811 beds, designed by noted architectural firm Goody Clancy. Residents do not have a splendid athletic center, but multi-tiered lounges, outdoor courtyards and a plethora of comfortable community rooms and study spaces foster a communal environment, Mason said.
“We have high-quality facilities, and all individual rooms certainly have all the amenities students want, but instead of including athletic centers for each building, students use the campus-level facilities.”
In 2016, the university opened a similar property, this one designed by Jeanne Gang, the architect of Chicago’s award-winning Aqua Tower. And in 2020, about 1,200 students will move into the new Woodlawn Residential Commons, designed by Elkus Manfredi Architects and developed by Capstone Development Partners and Harrison Street Real Estate Capital.
Achieving the university’s goals is not simply a matter of design, Mason said. The developments are heavily staffed by employees dedicated to creating student communities. Each building of roughly 400 units has a live-in faculty member, who hosts social and educational events in his or her apartment, along with live-in resident heads and resident assistants who work with smaller groups of students.
These communities help students deal with the school’s intense, high-pressure academic environment, but Mason said not every student housing development needs the same approach.
“What works at the University of Chicago may not work at another school,” he said.
Still, he hopes housing providers will in the future be more thoughtful about what students want out of college life, and use that knowledge to design spaces, rather than simply trying to one-up their competitors with more amenities.
“Whenever I visit a campus, I look not just at what they’re doing, but why.”
Just before opening the Gang-designed development, the university sold off three old dorms totaling 391 units, located at 5540 South Hyde Park Blvd., 5748 South Blackstone and 5445 South Ingleside, and the new owner said units like this fill another need often overlooked.
"Anything that is new and shiny gets more attention, but we still feel that there is a need in our sector for a more affordable alternative," 3L RE founder and CEO Joseph Slezak said.
His firm bought and repurposed the buildings into housing for a diverse population of undergraduate students, graduate students, university employees, other young professionals and visiting professors.
"This type of housing gives them an opportunity," he said.
3L RE specializes in adaptive reuse, a strategy that allows the company to hit lower price points, he added.
Last summer, the company purchased Columbia College's 343-unit 731 South Plymouth Court for $20M, and plans to transform it into an apartment building. Although it will not be specifically reserved for students, Slezak said a number of them have already made inquiries, and a significant number of residents will probably be connected to the school.
He will also speak at Bisnow's April 30 conference.
Schwartz expects high construction costs will keep many student housing developers focused on trophy class properties that garner the highest rents, but Blue Vista, which typically helps create two or three student communities each year, believes middle-market communities also make sense, especially with a possible downturn looming.
“If a recession hits, instead of paying $1,500 in rent for a trophy unit right on campus, parents will start asking their kids to look for an apartment a few blocks away where they can pay $1K,” he said. “If there is a correction, we will be very well positioned.”