The student housing industry has been uniquely affected by the coronavirus (COVID-19) pandemic. The niche asset class has been proclaimed “recession-proof” since its inception, and COVID-19 has been the ultimate test. One after another, universities across the country shut down, transitioned to online classes and sent their students home.
What we have found during this time is that college students do not go home just because class is cancelled. Across the nation, students are still living in their off-campus apartments and rent is still being collected.
Additionally, students who were turned away from traditional university-owned residence halls are now seeking off-campus apartments. With today’s students valuing privacy, distance and cleanliness more than ever, we are seeing students who typically live in residence halls transition to off-campus apartments where they can have a private bedroom and bathroom.
Jared Hutter, Principal, Aptitude Development.
What does this mean? Student housing is truly recession-resilient. When every university in the country cancelled classes, privately owned student housing not only remained stable but it expanded its clientele. The unknowns regarding where the economy is headed in the immediate future will likely give a lot of investors pause, but I personally remain optimistic about the opportunities that will come out of this pandemic.
A few reasons to remain optimistic about the industry:
Universities will reopen. There may be talk about online education as a viable option, but there is no replacement for the experience one gets while attending college on a full-time basis. There is no scenario where young adults will stop physically attending universities. A number of colleges and universities have told their students that they are evaluating every potential alternative for the upcoming fall semester, with options including fully opening campus, completing the entire semester online or some combination of the two.
After speaking with a number of university and state officials across the country, it is clear that the No. 1 option everyone is striving for is to have in-person classes this fall. The economic impact of having a university open cannot be overlooked. Between the large number of employees, tuition revenue to the university, and state and local businesses that rely on universities being in session, it is clear that reopening universities will be a strong catalyst in helping restart the economy.
Student housing is a recession-resilient asset class. While the outlook for economic recovery remains uncertain, during recessions there are upticks in enrollment at universities. According to U.S. Census Data, in 2009, overall enrollment at universities grew 6 percent from 2008 compared to 4 percent growth the two prior years. Ultimately, during times of economic uncertainty and when employment opportunities are not abundant, people choose to invest in themselves by increasing their education. This increase in enrollment will create a higher demand to live in student housing properties.
Student housing is still more stable than other asset classes. Collections are down in April compared to March. Nationwide, student housing operators collected about 91 percent of rent by April 13, compared to 96 percent the previous month. Student housing remains a separate obligation and is not tied to the school being open, thus rent is still due and most importantly, rent is still being paid! By comparison — according to data reported by the National Multifamily Housing Council (NMHC) — on April 12, only 84 percent of traditional multifamily tenants had paid rent compared to 90 percent the month prior. This key metric not only points to student housing performing better than multifamily in the current crisis, but shows that even in strong economic times, student housing collections are much more stable.
There is time to recover. With universities terminating physical classes in March and student housing leases for the 2020 academic year commencing in August, the industry has a natural buffer for universities to return to normal. Students have not stopped signing leases for the next school year through this pandemic. While we don’t take the summer off in our business, the vast majority of students do not occupy off-campus units in June and July, even though they are obligated to pay for them.
Universities canceling in-person classes for the end of the spring semester was not in our favor, but the key for the industry’s success moving forward will be having schools reopen in the fall. We do not have a crystal ball, nor can we guarantee that this will occur, but state governments are highly incentivized to reopen given the large economic impact they have — from the employment base at universities, to the small local businesses that are supported by students.
While this is a tough time for our country and the entire world, we at Aptitude Development remain excited about the opportunities that lie ahead. We have no concern about the college experience going away. Demand for student housing will continue to be strong for years to come, so long as we continue to strategically focus on the best locations in growing markets.
A number of Tier One universities are starting to increase their acceptance rates this year, which could lead to increased enrollment at highly sought-after universities. Coupled with the fact that there will likely be less new product delivered in the next few years coming out of this crisis, our developments are in a position to become increasingly valuable. As has been the case the last six years, Aptitude Development is going to continue to be nimble and extremely selective on the deals that it does pursue, but we believe now is the time to put our foot on the gas while many others are on the sidelines.
Jared Hutter is principal and co-founder of Aptitude Development, a national student housing development firm headquartered in Elmwood Park, New Jersey.