In their obsessive quest to find undervalued investments, there’s one housing sector that’s particularly appealing for investors: the student sector. And it’s not for the reasons you’d expect.

Yes, the Gen Y demographic wave, written about to death, plays a role in that thinking. But that’s not the only reason they love the sector. With the University of Kentucky’s decision to hire Memphis-based REIT EDR to run its housing, dedicated investors are focused on what’s going to be the next catalyst, says Paula Poskon , a senior research analyst with Robert W. Baird & Co.“Is there legs to this belief that a trend is emerging for universities to outsourcing their housing?” she asks. “Any kind of news flow around that will be a big catalyst for the sector.”

Making the upside even greater is that student housing is a fragmented industry, even compared to the very fragmented apartment business. Right now, there are two big REITs: Memphis-based EDR and Dallas-based ACC, a smaller, new entrant to the public space. There’s Charlotte-based Campus Crest, plus a handful of respected private competitors. And, that’s all. If a host of cash-strapped colleges and universities start outsourcing their housing, that’s not a big universe of players. “A number of student housing are still in the growth mode,” says another analyst.

So what happens next? Analysts expect consolidation in the student market and maybe some IPO’s. But there are challenges.

“A few young growth companies came to market,” says one analyst. “It’s not always easy. The challenges of a young growth company are that you have to go back to the equity markets to issue more capital and continue to grow and you need to make sure you’re out earning the cost of equity.”

That’s a challenge. But ultimately, expect more student IPOs. Colleges want to know who they’re working with and the public sector is one way to provide transparency and credibility.

“There will be more IPOs in this space because the growth trajectory and need for consolidation
is obvious to industry players. Scale will increasingly matter if this outsourcing trend takes hold. The need for scale to compete for that business will drive industry consolidation. I think we could see some rollups and IPOs,” the same analyst reports.

The question is who is next? Right now, no one knows. There are only some good guesses.