Student Housing's 'Economic Resilience' Will Continue To Drive Record Foreign, Domestic Investment In U.S. Assets
As millennials' pursuit of higher education fuels demand for student housing, institutional investors — including private real estate funds, pension plans and sovereign wealth funds — are increasingly stepping in.
A wave of capital flooded the industry last year. Investors poured more than $10B into U.S. student housing assets in 2016, making it the largest transactional year in history, according to ARA Newmark Student Housing Group's 2016 Market Overview report.
The alternative asset has been dubbed "recession proof" because it is not as susceptible to economic volatility as traditional sectors. Institutional investors have become increasingly fond of the student housing sector. In the past, a large portion of the funds flowing into student housing stemmed from friends-and-family capital, but institutional investment is beginning to dominate.
"The economic resilience, perpetually high occupancy rates and attractive returns with steady cash flow have made the student housing sector an attractive investment vehicle for both foreign and domestic capital," ARA reports.
Deal volume and deals transacted last year exceeded 2015's record levels, ARA reports. There was a total of 275 student housing asset transactions in 2016, each averaging about $193K/unit, with most deals concentrated in the Southeast, Midwest and Southwest regions. Though large portfolio deals dominated transactions last year, more investors are seeking value-add assets for opportunistic yields.
Record Cross-Border Capital
There are concerns that aggressive competition and the search for trophy assets in core markets have led to inflated prices for more traditional assets like office and multifamily, resulting in increased foreign investment in student housing.
Cross-border capital accounted for 21% of total student housing transaction volume in 2016, ARA reports. That is roughly $2B in capital allocated for student housing, which is more money that has flowed into the sector than in the past 10 years combined. That momentum has continued into 2017.
In early June, the real estate unit of Singapore's sovereign wealth fund, Mapletree Investments, acquired a portfolio of 18 North American student housing properties and four multifamily assets for a combined $1.6B. Vancouver-based QuadReal Property Group entered a joint venture with San Francisco-based GI Partners and Chicago-based CA Student Living to develop and manage U.S. student housing properties. QuadReal invested $600M in the JV, which, as of March, held a portfolio of 10 properties in nine U.S. states.
Scion Student Communities, a joint venture between Chicago-based Scion Group, Canada Pension Plan Investment Board and GIC (Singapore’s sovereign wealth fund), grabbed three U.S. student housing portfolios for $1.6B, the JV reported in March. The three portfolios include 29 student housing properties within university markets throughout the country.
"The student housing transaction market is expected to remain robust in 2017 as institutional and private investors, both domestically and globally, recognize the growth potential and resiliency of the sector," ARA reports.