SHB: What challenges will your market face in 2019? Where are the opportunities within these challenges?
Lang: It appears volatility on the capital markets side will continue to be closely monitored heading into 2019 and beyond. There remains great opportunity as the student market, as a whole, is fundamentally sound and viewed as a risk averse asset class within the larger investment community.
SHB: Which submarkets will surprise people in 2019?
Lang: While average occupancy at major Tier I universities continues to be stable near 95 percent, we believe several markets that have been supply constrained over the past few academic year cycles will begin making noticeable recoveries. Of note, we believe Texas Tech (Lubbock), Ole Miss (Oxford), and Michigan State (Lansing) have the potential to outperform investor expectations.
SHB: What market shifts are you noticing that others haven’t? What would you whisper to clients and prospects?
Lang: Along with newer construction product, there are clearly more opportunistic assets hitting the market and more yield driven investors focusing on opportunities that offer stable cash flow. With that said, private capital has accounted for approximately 65 percent of all purchasers year-to-date in 2018, and their general need for maximum leverage has become more difficult given shifting capital market trends. This presents a tremendous opportunity for investors that have the ability to purchase with lower leverage, offering them more accretive debt options in a market that appears to be seeing cap rates shifting, albeit moderately, upward. Additionally, we firmly believe that consolidation and recapitalization efforts will be a major theme in 2019.
SHB: Which investors are showing interest that haven’t before? Why?
Lang: The three investor types that are showing significant interest are institutional capital, overseas/cross-border capital and purchasers primarily and historically invested in other asset classes. Student housing continues to prove out superior risk-adjusted returns while offering a recession resilient haven for investors that believe we are nearing the end of an investment cycle.
SHB: How will deal structures/financing change in 2019?
Lang: It seems we’ll continue to see new joint ventures formed with the abundance of capital flowing from inside and outside of the US. As it relates to new construction, supply levels have normalized nicely and construction financing remains availability, albeit at lower LTC. For that reason, we’ll continue to see more preferred equity (structures) used to bridge the considerable gap between common equity and available debt proceeds.