Despite some lingering fears of the student housing sector overheating, there are useful strategies to protect your company from the overbuilding trend.
American Campus Communities, for example, focuses on large public universities with enrollments in excess of 17,500, schools that feature what they call a “residential campus heritage.” By focusing on infill pedestrian markets with high barriers to entry--and getting as close as possible to campus--they’re able to insulate themselves even if a market becomes overbuilt on the outskirts.
“When overbuilding does occur, we want it to take place outside of us,” says Bill Bayless, president and CEO at Dallas-based American Campus Communities.
Those barriers-to-entry include density limitations, entitlements, and ability to get funding. Today’s high cost of land is also a big issue, especially in urban areas. But to many established student housing companies, those barriers are a double-edged sword--they may make it difficult to develop, but they keep supply and demand in check.
Another strategy is to hedge your demographic bets. Developing in a market that also boasts a high volume of young professionals helps when all else fails, giving you the ability to reposition the asset as conventional rentals.
As always, location is everything. Most of the student housing projects breaking ground today are closer to university campuses.
“That’s a big difference in what happened in ‘06, ‘07,” says Randy Churchey, president and CEO at Memphis, Tenn.-based EdR Collegiate Housing. “There was a lot of new supply added but it was further away from campus. Those were the projects that haven’t done well since the recession.”
For both the student and the developer, it’s all about choosing the right university.
Even with rising student debt and tuition increases, there’s little fear that the demand for student housing will be affected.
“Most families believe that a college education is a worthy investment, and the last recession kind of proved that,” Churchey says.
Other factors that developers might worry about, including the impact of online classes on student housing demand, are futile, he adds. Online education can either turn into a feeder to the university environment, and so far hasn’t had any negative affect on demand.
Churchey also concludes that the rate of tuition increases will eventually slow down, while the wave of Millennials entering their freshman years will only accelerate.
“The supply dynamics are in our favor, and aged housing supply on campuses will eventually be replaced,” he says. “The future of student housing is very bright.”