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Foreign Money Continues To Pour Into Student Housing

Not a month has gone by that MJW Investments President Mark Weinstein does not receive at least two or three phone calls from an intermediary asking to meet with a foreign investor about the student housing industry.

As demand continues to increase for this once niche segment in the commercial real estate industry, foreign investors are looking to partner with operators who know the market well so they can get a foothold in the United States, Weinstein said.

Clark Pacific Director of Corporate Development Roy Griffith speaks about student housing while MJW Investments President Mark Weinstein, Pierce Education Properties CEO Fred Pierce and Carmel Partners Senior Vice President of Development Nolan Zail listen in.

“Foreign investors have been investing in multifamily for a long time,” Weinstein said after Bisnow’s SoCal Student Housing & University Development event Nov. 30 at the Omni Los Angeles Hotel at California Plaza. 

“It took them a long time to analyze it, but a lot of them have bought large portfolios,” he said.

More than 180 people attended the student housing state of the market event that included speakers from UC San Diego, UCLA, University of Southern California and industry leaders.

MJW Investments President Mark Weinstein and Pierce Education Properties CEO Fred Pierce

Student housing is part of multifamily, but rather than charging by unit, it is typically characterized by bed or room.

In 2016, more than $10B worth of capital flowed into student housing nationwide, $9.3B of which was directed toward the acquisition of student housing assets of $10M or more, according to investment advisory brokerage firm ARA Newmark’s annual student housing market overview released earlier this year.

The transactions were an increase of 64% over 2015’s record of $5.69B and 136% over 2012’s record of $3.9B, the study said.

Foreign investors accounted for 21%, or $2B worth of student housing acquisitions in 2016, the study said. In 2015, it was 1%.

“Five years of continued momentum, sustained rental rate growth, strong occupancy and diminishing supply have peaked foreign interest as the investment market enters an environment where certain sectors may be facing potential headwinds,” according to the study.    

Attendees socialize before Bisnow's SoCal student housing event.

Why Student Housing?

Nationwide enrollment is up, driving demand for student housing as well as faculty housing. Universities also are looking to create a more residential feel on campus. Studies show students perform better if they live on or within walking distance to campus as opposed to off-campus.

“We expect enrollment to grow another 9% [from now] until 2019,” The Scion Group Project Executive Ann Volz said.

Student housing has returns averaging about 2.8%, according to SNL Financial and Goldman Sachs Global Investment Research.

“In 2017, 40% of domestic institutional investors in America said they were going to invest in student housing,” Pierce Education Properties CEO Fred Pierce said during the event.

Pierce said there are not enough operators, investors and properties to develop or buy the land needed for student housing but the mindset of investors wanting to pour money in this subset shows the strength of the student housing industry.

Foreign investors see student housing as less risky and having less competition than those gobbling up office or multifamily investments, the ARA Newmark study said.

“It’s not only domestic capital that’s driving up development and acquisition but foreign capital is driving prices and buying portfolios,” Pierce said.

Weinstein said the influx of foreign capital has an effect on a developer’s ability to buy and invest in deals in core markets.

“We’ll see what happens in the next few years,” he said.

“Many of us remember the Japanese trend of buying office buildings in the late '80s,” Pierce said. “Foreign capital in the long run is very reciprocal. It comes and goes. Domestic capital is here to stay, whether foreign investment is here in the long run. My guess is I don’t know if it’s going to stay that way. But it’s here now.”