If you were a student housing developer 20 years ago, you were something of a nerd.
Real estate industry conferences and networking events resembled the social hierarchy of a high school cafeteria: Retail, office and multifamily were the popular kids, confident and loud in their cliques, and student housing developers were the ugly ducklings, on the outside looking in.
“I spent a lot of time in the late ‘90s and early 2000s telling people I was a student housing developer. They said ‘it’s aggravating turnover. Why do you do it? It’s such a niche’,” says David Adelman, president and CEO at Philadelphia-based Campus Apartments.
But these days, nobody questions why Adelman would do it; they’re more likely to ask how it’s done. The sector, with its access to easy liquidity and incredible demographics, is garnering the respect and curiosity of investors and developers all over the country.
In some ways, the Great Recession is to blame. The sector proved to be so resilient through the downturn that many commercial real estate developers, particularly in the retail market, entered the space as their own construction pipelines slowed to a trickle.
And the 55-year old Campus Apartments--along with industry veterans like Education Realty Trust (EdR) and American Campus Communities--is serving as a professor to these freshmen. The recent partnerships struck by these veterans offer a blueprint for new entrants to take note.
Campus Apartments began life as rehabbers, taking old buildings and converting them into student housing around the University of Pennsylvania, which, back in 1958, was serviced by only 100 Campus Apartment beds. Fast forward to today: the company operates 1,500 apartments for the university, and is just the tip of the iceberg since its expansion to 34,500 beds across 25 states, servicing more than 75 universities.
It’s been a long journey from the perception of student housing as Animal House.
“Student housing used to be kind of the Wild, Wild West,” Adelman says. “Landlords looked at students as a necessary evil.”
In the early days of the industry, no one really wanted students living in their off-campus units, but for many local landlords, it was a tactical financial move. There also was little structure to the student housing industry, but that started to change in the late-1990s.
Campus Apartment’s first significant partnership with the University of Pennsylvania in 2001 led to the management of a dilapidated building on the outskirts of campus, one that the university had no clue what to do with.
The partnership proved to be a big win-win, providing another revenue stream to Campus Apartments while solving the university’s dilemma. To many universities, being in the housing business was the nature of the beast, but by the late-’90s, they discovered the value of outsourcing non-educational services.
“Back in the day when you went to college, the person serving your food in the dining hall, was a university employee,” Adelman says. “What people realized was they could outsource the food service to Aramark or Sodexho. So my thesis in ’97 was: why can’t I be the Aramark of university real estate?”