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Post-Covid Market Fundamentals Place Spotlight On Student Housing, And Investors Are Betting Big

The University of Utah, Salt Lake City

Just as students are growing more desperate for campus housing with some resorting to live in vans or motels as a result of lower inventory and rising rents, investors across the board are looking to increase their foothold in the sector. 

Institutional investors, foreign equity and private capital buyers alike have flooded the sector since the onset of the coronavirus pandemic, seeking the higher yields the asset class presents compared to more traditional areas of investment, industry experts tell Bisnow

Newmark Vice Chairman and head of its student housing division Ryan Lang said in the past 18 months, he’s seen more new equity in the student housing space than over the past five years combined. 

“Student housing has been kind of the net beneficiary of really compressed yields on market-rate, conventional [housing] and other really hot asset classes right now,” Lang said. “Certainly over the past 18 to 24 months, [student housing] has looked like a relative bargain.”

For that reason, Lang said, major investors like Blackstone and Brookfield are circling around student housing. In August, Brookfield Asset Management was reportedly in talks to acquire at least $1B worth of student housing properties through a joint venture with The Scion Group, which operates 58,700 student housing beds across more than 200 colleges and universities. That same month, Blackstone Real Estate Investment Trust moved to form a $784M joint venture with Landmark Properties to recapitalize eight properties with roughly 5,400 beds that Landmark owns throughout the country.

"We’ve seen a very quick uptick in student housing occupancy to pre-Covid levels, which is one of the reasons we’re so bullish on the space,” Blackstone Senior Managing Director Jacob Werner told Bloomberg in August.

On a national level, major investors are expecting demand for off-campus student housing to grow. The National Multifamily Housing Council has predicted that enrollment in U.S. postsecondary schools will increase annually by an average 1.1% over the next decade. 

The pandemic temporarily throttled the need for student housing, as schools shifted to remote learning. But fall 2021 pre-leasing for off-campus student housing has slightly exceeded pre-pandemic levels, according to Yardi Matrix, which looked at leasing at 200 of the top “investment grade universities” that participate in the major college football conferences.

This return has left many students scrambling to find available and affordable residences, specifically in housing-strapped California. 

Schools have traditionally looked to increase the stock of on-campus housing to address those concerns, industry professionals note.

UC Santa Barbara drew attention in October when it considered building a roughly 4,500-bed dorm without windows in a $200M project funded by billionaire Charlie Munger. The proposal came amid a report by the Los Angeles Times that students at UCSB were taking housing matters into their own hands by purchasing vans, paying for motel rooms or lodging with friends on a temporary basis to secure housing and save costs. 

While this problem has been exacerbated by Covid-19, with some universities placing capacity restrictions on dorms, demand for the sector is still far exceeding supply: A report from the state legislative analyst shows that more than 16,000 students were on waitlists for housing at Cal State and UCs for the fall term this year. 

MJW Investments owns three off-campus housing complexes within a mile of UCSB that were formerly traditional apartment buildings, but were reconfigured to accommodate demand from students by allowing rooms to be rented on a per-bed, rather than per-unit, basis. 

The properties are considered Class-B and C assets, MJW Investments President Mark Weinstein said, which has helped drive down costs and maintain higher occupancy levels. He estimated that his properties probably cost about $775 per bed, though prices increase along with proximity to the university. He said he has zero vacancy at all three properties. 

Pierce Education Properties owns properties near San Diego State University, including BLVD 63, the largest off-campus housing complex at SDSU with 1,379 beds. President and CEO Fred Pierce estimates off-campus housing is at 100% capacity, and that on-campus housing is nearly that. 

"There's a supply and demand imbalance" when it comes to student housing for the school, Pierce said, adding that his firm has two student housing properties under construction near the campus. 

"In most urban metro areas in California, there's no conventional apartments available either," Pierce said. "It's difficult for everybody to find housing, not just students." 

At UC campuses, there has been a big push to create new on-campus housing for students, from both the schools, the University of California Board of Regents and from the state. State funding from a bill called SB169 would set aside up to $2B through 2024 to build housing on UC, Cal State and community college campuses, though the biggest chunk of the money would go toward community colleges. The first wave of that funding, $500M for 2021-2022, has been approved. 

The funding doesn’t allow schools to use the money for public-private partnerships with outside developers — a tool that many public universities have used over at least the last decade to build student housing projects on campus.

That could encourage investors to prefer acquiring student housing projects, rather than build them, to capitalize on gains from growing demand. 

As of last month, year-to-date transaction volume for the sector nationally was up about 145% compared to 2020’s numbers,  according to Lang.