Big Changes To Student Housing: No Construction Financing, And New Ways To Market
Student housing development in urban areas can be a tremendous challenge. In a panel at Bisnow's Annual Student Housing Summit Tuesday, industry titans told us a severe lack of available capital will slow student housing development in the coming months.
University Student Living's Joe Coyle expects there will be more renovation than new construction in the immediate future. Building will be difficult for two reasons: construction costs are rising faster than rents in most cities, and the debt market is going to become more cumbersome. Loan capital will be harder to come by and syndication of larger transactions between banks is going to get more difficult, Joe said.
Berkadia's Bob Falese says banks are moving away from construction loans, preferring to do medium- to long-term permanent loans. "The dichotomy here is that there is plenty of capital, both debt and equity, for the investment once it’s built and once the cash flow is there,” he says.
“Now, every construction loan that’s done by a bank is marked with additional capital allocations that are required by regulation. We have already seen a significant drop-off in the availability of construction funds this year. The effects of this are more acute in the specialty business of student housing than they are in the market at large,” Bob said.
Marketing techniques are changing in student housing as well. Blue Vista’s Rob Byron has seen that equity investors want to create a brand and have a common name, but the reality is that each one of these projects is unique to the market, so the time and effort associated with creating a brand isn’t really necessary or even helpful. There isn’t enough value in a brand to justify the cost of trying to establish one.
Innovative marketing techniques have been working for Post Brothers. Students want to be in a place where they can throw parties, which is rarely a characteristic of university housing in denser cities, Mike Pestronk said. The company was able to push rents 25% in one season by making the property "cool," thanks to a big party the company hosted that featured an ice luge in the shape of the building (a contraption used for taking shots, Mike explained) and bartenders in tropical attire. They leased 300 beds in a two-month period after, even though very little improvement was done to the units.
Social media isn’t one of Mike’s favorite methods of advertising. “Nobody has ever rented an apartment off of Facebook,” he said. People who actually use social media can sniff out cheesy corporate media from a mile away. If you’re posting lame, generic content that’s not applicable to them, it won’t do anything.” Mike has found success with social media when the content has been memorable and original.
Joe felt that downside marketing via sites like TripAdvisor is something to look out for, however. He’s contacted residents who've posted negative comments or ratings through the social media to ask them for a phone call or to come in to the office to resolve these issues. This is the best way to turn around these kinds of ratings as quickly as possible, he said.