As colleges and universities across the country open their doors for fall semester and students begin filing back into dorms, apartments, and off-campus housing, it's time to hand out grades. No, not for students. That's still a few months away. It's time for student housing companies to receive their report cards. And it seems that, in most cases, those grades show that student housing providers will be improving their performance markedly in the 2011–2012 school year.
“We have continued to see rent increases, and we've continued to see people go to school,” says Miles Orth , senior vice president and COO at Philadelphia-based Campus Apartment s. “Arguably, enrollment increases when you're in a recessionary period. That means rent and tuition go up."
Indeed, that is the case, as the recession has pushed more people back to school. In addition to that, there's also the massive wave of Gen Yers projected to enter institutions of higher learning over the next decade. The National Center of Education Statistics (a part of the U.S. Department of Education ) expects the number of students enrolling in postsecondary institutions will have increased 17 percent, to 22.4 million, from 2008 to 2019.
Student housing companies like Campus are obviously enjoying these demographic trends. The enrollment surge—and the associated boost in student housing demand—has these companies eyeing internal growth, whether in development, acquisitions, or property management contracts.
The Numbers Ring Out
In late August, Atlanta-based Ambling Cos ., a student housing provider with about 20,000 beds in the Eastern half of the country, along with Arizona and Texas, still had a couple of properties remaining to go through fall leaseup. But Hugh Hodge , EVP of Ambling Management Co., was quite pleased with where the numbers were trending. “We had a very good lease-up this year,” he says.
The numbers bore this out. Hodge says most properties Ambling manages had occupancies in the high 90 percents; some even had waiting lists of students wanting spots. The company was able to raise rents at least 3 percent at most of its properties. “As people rent a certain percentage of the units, we will push rents $5 or $10 [often topping out at $20]," Hodge says. “We've been pretty successful at raising rents during lease-up."
Orth tells a similar story with Campus' 30,000-bed portfolio across 25 states, which was 97.5 percent leased in mid-August, with students still coming in through the end of the month. “We're ahead of last year on a net effective-rent basis and on a physical occupancy basis,” Orth says.
Charlotte, N.C.–based Campus Crest , which has 17,064 beds across 16 states, reports its occupancy is up 6 percent compared with last year. Mike Hartnett , co-chairman and chief investment officer of the company, says demographics have had an effect on this growth, but the economy has also been a major factor. “Kids with an undergraduate degree in political science are going back for degrees in engineering,” he says. “I talked to one student yesterday who is going back for a second degree because the economy is so bad."
Because of the importance most families place on education, Hartnett thinks tuition and, by extension, housing are essential expenses. “The education of a child is a primary thing for most people in this country,” he says. “Mom and Dad will pay for that. They're not going to cut education or their child's housing. They'll cut a lot of other things before they cut that."
Building on Strength
With this trifecta in place—a rise in the college-age cohort; universities needing newer housing; and kids staying in school longer—the student housing sector is in the middle of a perfect storm of success.
“You have a need for housing,” says Ted Rollins , CEO of Campus Crest. “The states don't have the money [to build new housing]. In a lot of cases, there's an obsolescence factor for existing housing that was built in the '70s."
That presents an opportunity for student housing firms to come on campus and build, which has become a major growth area. “The university knows they want housing,” says Randy Churchey , CEO of Memphis-based REIT Education Realty Trust (EDR), which owns 22,695 beds in 23 states. “They need us to build for them."
For companies like EDR, that need has allowed them to add on-campus developments to their pipelines. Right now, EDR has nine projects in either development or planning, seven of which are on campus. “Building on campus gives us a permanent competitive advantage,” Churchey says.
But that doesn't stop other companies from also pushing to build near campus, which offers its own advantages. Campus Crest, which focuses on institutions with about 15,000 students, is working on six new wholly owned properties and two joint-venture communities. “We're working hard and diligently to expand our footprint,” Rollins says.
Expansion is a similar theme among most student housing owner/operators. Campus Crest relies only on development for adding units. EDR has made some buys, securing four properties in the past year. Campus Apartments builds on its own balance sheet and does some fee-building for colleges. Right now, it has three active developments and two in the pipeline but doesn't want to get overextended.
“For us, we continue to see an opportunity to get out there on the development side,” says David Adelman , Campus Apartments' CEO. “But we don't view ourselves as a merchant developer. We will be careful with the supply side and trends in that market."
Since August 2010, Campus Apartments has acquired the property management contracts on 12 properties, totaling 6,888 beds. It also acquired the ownership and management of three properties, bringing in an additional 151 units. For Ambling, the main growth avenue is picking up property management contracts.
That kind of action and expansion will earn good grades from on- and off-campus student housing investors across the country.
