If most of them aren’t already, the country’s studenthousing developers, owners, and operators would make excellent parents, given all they need to know about the needs, wants, and behaviors of collegians.
And considering the number of students enrolled in U.S. colleges and universities today, those characteristics can cover a broad spectrum.
But no matter their specific personal traits, most students today desire at least three things: their choice of floor plans, budget-sensitive incentives, and, of course, unlimited technological support.
one size doesn’t fit all
Student housing owners are embracing a strategy that hospitality companies have implemented successfully for years: operating multiple properties in a single market to appeal to more customers.
Consider Hilton Worldwide: The company often operates several properties in the same market under various brands to attract a wide range of guests. It segments its customers by price point and type of travel, business or personal.
Likewise, in the student housing industry, a number of owners are building portfolios that will appeal to a wide range of residents. They’re differentiating properties by design and lease rates, as well as academic class.
“The idea of product differentiation is fairly common across many real estate sectors, hospitality in particular, and, now, student housing companies are doing it,” says Miles Orth, executive vice president and COO at Philadelphia-based Campus Apartments. “There are a number of markets where it makes a lot of sense.”
Like hospitality companies before them, student housing owners have recognized that not all their customers are the same. Their residents certainly have one thing in common, however—they’re all students. But beyond that, each one has different priorities and expectations, Orth notes.
Those priorities and expectations could be as simple as having a private bathroom or a resort-style pool. Student housing owners that operate a property without such features may have trouble attracting residents who want them.
That’s why it’s important to have multiple properties to meet students’ needs, Orth contends. Campus Apartments, for example, operates several properties near the University of Arizona, Central Florida University, and the University of Pennsylvania.
For owners, it comes down to casting the widest net to sustain occupancy and rental-rate growth, according to Bill Bayless, CEO of Austin, Texas–based American Campus Communities (ACC).
“We’ve seen a lot of development in the student housing sector, and too many new developers are focused on providing product at the very highest price point,” he notes. “What frequently happens is that high-end product gets overbuilt and has difficulty sustaining long-term rental-rate growth.”
Bayless says ACC recognizes that different residents have different needs, particularly when it comes to budgets. “In a number of markets, we have an array of properties at different price points,” he says.
keep Class differences in mind
Beyond price, student housing owners are seeking product differentiation via lifestyle options, as well. Charlotte, N.C.–based Campus Crest recently acquired Copper Beech Townhome Communities, the fifth-largest student housing operator in the nation. The Copper Beech product differs significantly from Campus Crest’s core product, known as The Grove.
Whereas The Grove properties offer traditional apartment floor plans and target students in their sophomore to junior years, Copper Beech properties offer large, townhome-style units that appeal to seniors and graduate students who desire a more “residential” experience, says Ted W. Rollins, co-founder, co-chairman, and CEO of Campus Crest.
Rollins says Copper Beech’s high-quality, well-located townhome portfolio complements Campus Crest’s existing portfolio and prototypical Grove product. Moreover, Copper Beech gives the REIT another brand to develop.
“Our five-year strategic plan includes multiple brands to give us access to different subsectors of the student population,” Rollins explains.
The Copper Beech acquisition adds 35 properties and approximately 16,645 beds to the Campus Crest portfolio. With the acquisition, the company has The Grove and Copper Beech properties in several markets, including Auburn, Ala.; Statesboro, Ga.; State College, Pa.; and San Marcos, Texas.
There are some downsides to this type of product diversification strategy, of course. The old adage “Don’t put all your eggs in one basket” certainly applies, since owning and operating multiple properties in one market makes you vulnerable to market conditions. If the market weakens, your properties likely won’t perform well, says Judd Bobilin, a partner with Chance Partners, an Atlanta-based student housing developer.
“If you’re too focused on a singular market or a single group within that market, you’ll be very sensitive to that supply,” Bobilin warns.
debt on the brain
Diversifying product to meet students’ different financial situations will broaden owner–operators’ reach as well. Today’s undergrads are more conscious of expenses than their predecessors were. They’re focused on value, especially when it comes to housing. That means student housing owners and operators must offer more services, more amenities—and more concessions—to attract and retain residents.
“Many college students grew up and lived through the Great Recession with their parents, and that turned them into more cost-conscious consumers,” says Scott Duckett, COO of Austin, Texas–based Campus Advantage.
“It’s not just about having less money,” Duckett explains. “They’re thinking differently about how they’re spending the money they have. It’s a culture change.”
Because of having experienced the Great Recession firsthand, students today are more concerned about the amount of debt they’ll be burdened with after they graduate. Although some students are lucky enough to have parents who pay for their education, a large majority must take out loans to pay for college. As a result, they’re being more mindful of their budgets.
Campus Crest’s Rollins agrees. In fact, he contends that the focus on value begins with the choice of college, which ties directly into the REIT’s strategic plan to invest in markets with nonflagship state schools.
“Consistent increases in tuition have had an impact on housing,” notes Campus Apartments’ Orth. “[Students are] looking for scholarships to cover their tuition and ways to minimize their housing costs. They’re looking for the best value they can find. That doesn’t mean they’re looking for the cheapest property, but value is important to them.”
“Anecdotally, we’re seeing that students are more price sensitive, and our data points suggest the same thing,” Orth says. “We’re not seeing the same level of rental increases on a year-over-year basis.”
Orth says Campus Apartments is seeing rental increases of 1.5 percent to 2 percent, compared with 2.5 percent to 4 percent, over the past several years. “There are ways for us to offer incentives and improve amenities to get additional rent growth,” he adds.
While parents are concerned about housing expenses, students are taking the lead when it comes to research and comparison shopping for housing, observers note.
“We’re seeing more students being more informed consumers in making their housing choices,” Duckett says. “They’re doing their homework and comparing rents and all the costs of living at a property.”
As a result, Duckett says, Campus Advantage has shifted its strategy regarding concessions. “A few years ago, we’d give away an iPad to entice students to sign leases,” he notes. “Now, they’re more focused on the true cost. They’re not so easily turned by a shiny toy.”
Instead of giving away an iPad, Campus Advantage will offer Visa gift cards or a reduction in rent. Duckett says 90 percent of new residents choose the rent reduction instead of the gift card.
In the search for value, not surprisingly, technology plays a big role for housing-seeking students. “Students have become much more sophisticated in analyzing their housing options, in part because technology makes it so easy,” notes ACC’s Bayless. “They can do comparisons online and use social media.”
Students and their parents are still willing to pay for proximity to campus, according to Bayless. In fact, in the hierarchy of value, proximity ranks highest. Unit plans and amenities are next on the list, followed by customer service.
“Student housing is being modernized, and better operators are entering the space, both of which raise the bar for what students expect,” Bayless notes.
Chance Partners, for example, has invested in technology to provide more value to its residents. Bobilin says college students view bandwidth as a necessity. Therefore, the properties with the greatest bandwidth are more attractive.
At the company’s newest project, Catalyst, near Florida State University in Tallahassee, Chance has installed fiber going to the units.
“It’s a marketing decision, definitely,” Bobilin says. “Millennials use so much more bandwidth, and it’s a significant factor for them when they’re making a housing decision. We believe having fiber going to the unit gives us the best positioning in the marketplace and allows us to differentiate.”
Campus Advantage, meanwhile, is particularly focused on service as a way to create additional value for its residents, as well as for parents. For example, the company provides care packages and concierge service during final exams.
“We’re investing in people to provide a high level of service,” Duckett says. “We believe service has helped us achieve an industry milestone for retention. Forty-six percent of our residents stay with us, versus 30 to 35 percent, on average, for the industry.”
As a result, communicating the value proposition is more important than ever, Duckett contends. Campus Advantage has created so-called “value charts” that illustrate a property’s amenities and benefits and assign a dollar value to each.
“Students are willing to pay more for functional and practical amenities than flashy amenities,” Duckett notes.
slashing marketing costs through social media
Because technology is so important to today’s students, it stands to reason that owners and operators should employ that same technology in trying to attract this demographic to their properties.
Indeed, in general, student housing operators today are shifting the bulk of their marketing budgets to social media and focusing on popular social media outlets such as Facebook and Twitter. They’ve realized their target audience is a heavy user of social media and responds well to social media marketing.
Ten years ago, student housing operators spent the majority of their marketing budgets on direct mail, according to Bayless. Today, however, Facebook and Twitter, along with company and property websites, have taken precedence. And the expense entailed in a strong social media campaign is a fraction of the cost of a traditional campaign.
“As the market has evolved, we’ve evolved as well,” Bayless says. “We have absolutely shifted our marketing budget to online activities, and social media is the primary way we market and communicate with residents.”
E-Mail Becoming Passé
The decision to focus on social media marketing is a no-brainer, operators contend. Over the past 10 years, the number of students using the Internet and social media has increased substantially.
A 2002 study from the Pew Research Center found that 86 percent of college students used the Internet, compared with 59 percent of the general population. At the time, the most popular online social activity was forwarding messages to friends or family via e-mail.
Today, the organization estimates that nearly 100 percent of students use the Internet. Many students even consider e-mail passé, and the most popular online social activities are posting on Facebook and tweeting on Twitter. As a consequence, companies in the student housing space must participate in social media to engage their customers, says Orth.
Campus Apartments doesn’t treat all social media sites equally: There’s a clear favorite. “We’re focused on Facebook, and we leverage it in two ways: resident engagement and brand awareness,” Orth explains.
For example, Campus Apartments recently used social media to reach out to residents and potential residents. The company hosts an annual pool party at its community in Tucson, Ariz., and it uses social media to publicize the event.
“The party received 1,500 RSVPs on Facebook, and it was shared with 6,000 people,” Orth notes. “Social media allows us to engage in ways that would cost us tens of thousands of dollars if we used traditional marketing methods.”
Orth notes that Campus Apartments has cut its marketing budget overall, spending less money per bed and per unit, but that it continues to invest in social media marketing.
“By leveraging social media, we have been able to dramatically reduce marketing costs,” he says. “It’s been a humongous change for us. If we were to rank marketing tools, we would rank social media as No. 1.”