By Katie Sloan
AUSTIN, TEXAS — The 17th annual InterFace Student Housing conference, held April 9-11 at the JW Marriott in Austin, Texas, saw more than 1,500 student housing industry executives gather for educational sessions and networking. The conference’s first full day kicked off on April 10 with the ‘Power Panel,’ which brought together a group of high-level executives from several of the top companies in the sector to discuss their outlook for the year ahead.
Moderator Peter Katz, executive managing director with Institutional Property Advisors, began the discussion by highlighting a few growing concerns in the current economic environment. Chief among them were the potential impact of global tariffs on equity and development in student housing and the possibility of an economic slowdown or even an impending recession.
Editor’s note: InterFace Conference Group, a division of France Media Inc., produces networking and educational conferences for commercial real estate executives. To sign up for email announcements about specific events, visit www.interfaceconferencegroup.com/subscribe.
Still, the student housing sector has proven time and time again that it is a resilient asset class. “If we look back at the global financial crisis and COVID-19 pandemic, we’ve witnessed that the student housing sector is pandemic- and recession-resistant,” said Katz.
“Institutional investors are continuing the major trend of seeking portfolio diversification into niche sectors like student housing that provide insulation against the risk of economic downturn,” he continued, assuaging fears related to present geopolitical conditions.
“This has contributed to increased allocations of capital into the sector,” he continued. “Couple this with stable enrollment growth at flagship universities, solid pre-leasing year-over-year and steady rent growth, and we’re looking at what’s likely to still be a phenomenal transactional investment year in 2025 despite the fears of a future recession.”
Tariff Uncertainty
Escalating worries over the potential impact of tariffs on student housing — particularly as it relates to new development projects — were top of mind for those in attendance at this year’s conference. For Marc Lifshin, founder and CEO of Core Spaces, the impact of tariffs are expected to be somewhat limited as it relates to new construction and can largely be addressed by proper underwriting.
“We couldn’t underwrite COVID because of the labor component with construction timelines, but we can underwrite tariffs,” he began. “It’s about hard costs and the actual materials are about 40 percent of the equation. From there, we can determine what percentage of costs are subject to tariffs by running sensitivity analysis. Tariffs likely won’t impact the overall cost of development by more than 1 percent to 2 percent, so we expect to see a lot of projects continuing to move forward despite headwinds.”
“We’ve seen student housing outperform expected returns over multiple economic cycles and I think we’re likely to see some turbulence and potential headwinds with investors in allocation issues, but student housing still looks great when you’re looking at the hard assets,” said Lifshin.
Wes Rogers, chairman and CEO of Landmark Properties, agreed, noting that the impact of tariffs is largely going to vary by region and construction type. “In the Southeast — and the Sun Belt in general — multifamily development has fallen off a cliff,” he said. “We’re seeing labor costs come in a bit and pricing pressures have eased in general, so I don’t believe the uplift from tariff costs is going to move the needle too much.”
The biggest challenge, according to Rogers, is dealing with the uncertainty. “It’s difficult to plan and my greater fear is the potential for supply chain disruptions,” he said. “We might be facing scenarios where a chip that is provided by a Chinese manufacturer might not be available for appliances, leading to difficulty sourcing appliances for our projects. That makes us nervous as a sector, but we can underwrite what the costs are and plan accordingly.”
Administration Shifts
Uncertainty regarding the future of cabinet-level departments of the United States government like the Department of Education were another cause for concern addressed by the panel, with even pre-leasing numbers feeling an impact according to Rob Palleschi, CEO of American Campus Communities.
“We’re seeing choppiness from a lease-up standpoint on a market-to-market basis and there’s a lot of noise out there with the current presidential administration’s approach to higher education, which is creating some uncertainty,” he began. “We don’t know what’s going to happen with the Department of Education — is it going to be pushed to the states? We’ve all endured Free Application for Federal Student Aid (FAFSA) challenges over the past 18 to 24 months and we’re wondering if that is going to continue as well?”
“There’s just a lot of uncertainty out there with universities and students, and while we’re still on pace for our projections and budgets year-over-year, we’re seeing single-digit rent growth in a lot of markets and occupancy is relatively flat year-over-year across our portfolio,” said Palleschi.
Administration changes and the geopolitical landscape might also play a role in the number of international students choosing to study in the U.S. according to Justin Gronlie, managing director at Harrison Street.
“About 5 percent to 10 percent of our residents are international students and that’s certainly an area of risk for us as a sector — particularly in university markets that are densely populated by international students,” he said.
“We view this group of students as a little less cost conscious than domestic students, and we feel the international student population is increasingly important when looking at high-end off campus properties,” he continued. “These students are likely to start making decisions for the next academic year and we’re hoping they continue to study here in the U.S.”
Equity Impact
In the face of elevated rental rates and shifts in construction costs, the industry is seeing new scalable developments of ‘epic proportions,’ according to moderator Katz, with large numbers of beds being delivered throughout the space.
And while 1,000-bed deals are nothing new and have been seen in the sector over the past decade, they’ve never been seen as prevalently as they are today, according to Tim Bradley, founder of TSB Capital Advisors, and underwritten development yields are adjusting accordingly.
“These massive projects mean a bigger equity check at the end of the day, and we have institutional capital in our space to fund these deals, but they’re going to see yields that are similar to what a 700-bed deal in a similar location at a Power Five university would garner,” said Bradley.
“On these sizable developments, there’s always going to be the question of exit value and private investors are approaching this in a number of different ways,” he continued. “We’re likely going to see exits start to occur over the next two academic cycles and for a lot of groups that are entering student housing that are foreign, they’re going to be looking for these bigger equity check sizes.”
For Rogers of Landmark, these larger-scale projects offering over 1,000 beds are currently at a premium because they’ve outperformed everything else in their portfolio over time.
“You really have to build the right product at the right location, but if you do that you can get economies of scale and offer a better value proposition to the student by either having more amenities or an offering that no one else in the market can offer,” he said. “It’s certainly a lot more challenging to get deals over $300 million capitalized, but the development yields do tend to be higher on them.”
But the investor view of what a core asset is in real estate has changed over the past few years and that needs to be considered where new transactions and projects are concerned, according to Robert Bronstein, president of The Scion Group. Especially when looking to garner support from institutional investors.
“People were buying billion-dollar office buildings on Park Avenue and lost $600 million,” he said. “Five years ago, that Class A trophy asset in Manhattan would have seemed like as much of a fortress as there could possibly be. I think we need to be careful at defining what core means and what it’s going to mean moving forward.”
“Investors have lost a tremendous amount of money on really large trophy assets that didn’t end up being much of a trophy,” he continued. “And people tend to react most powerfully to the last bad thing that happened to them. So that’s something to be considered when building out these large assets.”