Just weeks before the fall semester got under way, the Georgia Institute of Technology in Atlanta announced that it didn’t have enough student housing. The university, one of the largest in the Southeast, with an enrollment of more than 16,000 undergraduate and graduate students, needed to house 2,500 students, but only had 2,000 beds available.

Instead of bunking three to a room or being forced to sleep and study in the student union and campus lounges, many students choose to live at The Flats, the only student housing community in Atlantic Station, one of the largest mixed-use projects in the nation, with millions of square feet of office, retail, and residential space. The 86-unit community, which is owned by Atlanta-based Lane Co., opened in August at almost 100 percent occupancy, said Jim Collins, a regional vice president for Lane Management, LLC.

“Today’s students are more demanding,” Collins said. “They don’t want to be in a room that is like a prison cell. They want more privacy and greater amenities.” Today’s student housing owners and developers are offering amenities like high-speed Internet, movie theaters, billiards rooms, tanning beds, coffee bars, volleyball courts, and barbeques.

Most universities are either having trouble accommodating their student housing needs or their student housing is antiquated, said Ray Barrows, managing director of University Partners, a division of FirstWorthing, a Dallas-based multifamily owner and developer. “The last big wave of student housing construction was in the 1970s, and there’s increasing demand from the ‘echo boomer’ generation and a greater number of students who are choosing to go to college.”

A number of public and private companies across the nation are trying to take advantage of the lucrative student housing niche. Just a few years ago, the sector had only a few players; today, it has become quite crowded, although each player has its own unique strategy.

For example, Austin, Texas-based American Campus Communities, the largest student housing real estate investment trust (REIT) in the nation, and Philadelphia-based Campus Apartments, Inc., are pursuing on-campus development opportunities. Other companies like University Partners and Lane Co. have chosen to focus on off-campus development. Similarly, Education Realty Trust, Inc., also prefers off-campus development, but with a twist: The Memphis, Tenn.-based REIT tackles these projects by bringing in local partners.

Other companies such as Place Properties, Prime Property Investors, Ltd., and College Park Communities, Inc., the student housing arm of GMH Communities Inc., are focused on acquisitions.

“There’s a lot of opportunity in student housing—we’re really bullish on the sector,” said Bob Clark, chief financial officer of Place Properties, an Atlanta-based company that owns or manages more than 19,000 beds across the country. Most student housing operators lease by the bed rather than by the unit, so they often measure their portfolios by counting beds rather than units.

Although most recent on-campus student housing development has been constructed by the private sector for a fee, with the university retaining ownership of the community, a new development model is emerging, according to David Adelman, president and CEO of Campus Apartments, which owns a $200 million portfolio of real estate comprised of 145 properties.

Developers putting money where their mouth is

“We think the industry is heading toward a model where developers lease land from universities and develop student housing with private funds,” Adelman said. “Universities are more than happy to use someone else’s money to solve their problems.”

For example, Campus Apartments, which recently raised $1 billion through a joint venture with GIC Real Estate Pte, Ltd., the real estate investment arm of the Government of Singapore Investment Corp., is in the midst of constructing a $30 million, 200,000 square-foot residential and retail complex at Franklin & Marshall College in Lancaster, Pa.

Dubbed College Row, the three-building complex will offer 117 units and house approximately 400 students from the junior and senior classes. Campus Apartments is leasing the land from the university and is funding the development itself. It will retain ownership of the complex when it is completed next fall.

Similarly, American Campus Communities plans to develop $250 million of student housing on the Arizona State University (ASU) campus in Tempe. By signing a 65-year ground lease for the site and using its own equity, American Campus Communities will add three new properties totaling 4,850 beds to its own portfolio.

“This is the best of both worlds for us and the university,” said William Bayless, president and CEO of the REIT. “It is the cutting edge of on-campus finance.” He contends that the REIT will have access to the best location, while ASU will be able to preserve its debt capacity for other expenditures.

Lenders get on board

“We think the demand for on-campus housing continues to flourish, and we think the ASU deal will encourage the developer equity model and pull schools away from project-based financing,” Bayless said.

Student housing has transitioned from a sector that the financial community viewed with misgivings into one that is greeted with the same enthusiasm as the conventional multifamily sector. Lenders have a better understanding of the student housing market today, Bayless said, and as a result financing terms for construction and acquisition loans are in line with loans for apartment properties.

University Partners also has approached student housing by partnering with universities, primarily because doing so allows the firm to be designated as the preferred housing provider and to market directly to incoming students.

The company has worked out a partnership with the University of Pennsylvania to develop a $50 million, mixed-use building on campus. University Partners is leasing the land from Penn for 65 years and will build a mid-rise building with 150-plus housing units and 40,000 square feet of commercial and retail space on the ground floor.

“The deal at the University of Pennsylvania is a good business model for us because we’re getting the on-campus location, and the project also allows us to have a retail component,” Barrows said.

However, Barrows noted that the company’s business model for the next few years will focus on off-campus development. “Although we clearly see a trend emerging where universities will partner with private developers because it allows them to take it off the balance sheet, only one of the six student housing properties that we have under construction is on-campus,” he said, adding that University Partners hopes to increase its development pipeline to do about $200 million per year in new development.

Likewise, Education Realty Trust’s development company subsidiary, Allen & O’Hara Development Co., LLC, recently formed a partnership with a local family that owned land near the University of North Carolina at Greensboro. The 11.45-acre site currently houses a 50-year-old, 96-unit apartment complex, which will be demolished to make way for a new 600-bed student housing community. “We prefer to work with local partners who can bring a good site to us and help us work through the local entitlements,” said Executive Vice President and Chief Investment Officer Craig Cardwell.

Upside potential encourages acquisitions

Education Realty Trust isn’t just looking to grow via new development; the REIT is also keeping an eye out for acquisitions. Cardwell said it will acquire about six properties in 2006 with a value of about $150 million. All of the properties are purpose-built student housing like Players Club, an off-campus community near Georgia Southern University in Statesboro, Ga. Purpose-built is an industry term that refers to properties built specifically for students rather than conventional multifamily use. One of the big differences between conventional and purpose-built student housing is the number of bathrooms and the layout for common areas.

The REIT paid $13 million for the 624-bed community, which was 72 percent pre-leased for the 2006 academic year. Cardwell said the REIT plans an extensive repositioning of the community and will expand the amenities package to make it more attractive to students.

Northbrook, Ill.-based Prime Property Investors has approached growth in much the same way as Education Realty Trust, but on a smaller scale, said CEO Michael Zaransky. The company, which owns 15 student housing properties near Purdue University, Florida State University, the University of Illinois at Urbana-Champaign, and Loyola University in Chicago, wants to buy communities ranging from $5 million and $15 million that require repositioning.

Zaransky said pricing for the larger student housing properties has reached the point where there’s little or no upside. “On the smaller and mid-sized deals, there is still money to be made,” he said.

Place Properties also is on the hunt for purpose-built student housing, but prefers to look outside of major markets. Clark said that there’s tremendous competition to acquire purpose-built housing in major markets—“more competition today than we’ve had for the past several years.” That’s why Place Properties’ strategy is to find growing secondary and tertiary markets. “We’re looking for newer assets near colleges with student populations of 5,000 or more,” he said.

For example, the company spent $59 million to acquire three properties near Sam Houston State University, Illinois State University, and Indiana State University. “There are markets that haven’t been picked over yet,” Clark said.

The competition for purpose-built housing has compelled College Park Communities, which currently owns 63 student housing properties with nearly 38,000 beds, to look toward conventional multifamily properties that can be converted into student housing, according to President John DiRiggi.

The next wave: conversions

DiRiggi estimates that College Park Communities will spend as much as $400 million in acquisitions this year including the $250 million purchase of Birmingham, Ala.-based Capstone Properties’ student housing portfolio, which consists of 11 purpose-built communities on several campuses. Fifty percent of the company’s acquisition activity will be focused on conventional properties with conversion upside.

“The opportunity is greater with the conventional because purpose-built is a small portion of the overall student housing pie and cap rates are being compressed,” DiRiggi said. The company’s strategy is starting to pay off, he notes, pointing out that College Park Communities recently acquired a conventional multifamily asset near the San Diego State University campus.

Since the deal closed, College Park Communities has changed the leasing policy from by-the-unit to by-the-bed, furnished all units, and wired them for high-speed Internet. With the conversion, DiRiggi said the company expects rental revenues to increase by as much as 30 percent.