The outlook throughout the conference was overwhelmingly bright. Each panel and session showed the sector to be robust, with reports of rising rental rates, a record year in asset sales in the sector, and increasing investor interest and capital entering the student housing market.
The conference began on Wednesday, Sept. 28, with opening remarks by NMHC president Doug Bibby, followed by a panel titled “Keeping Count: The Public Company Perspective.”
Led by CEO of Peak Campus Bob Clark, the panel went in-depth with the CEOs of the two public REITs in the industry — Bill Bayless, president and CEO of American Campus Communities (ACC), and Randy Churchey, chairman and CEO of Education Realty Trust (EdR).
Clark began the panel with a variety of statistics on the sector today, as reported by Axiometrics. New supply deliveries for the last five years have been 61,000-beds in 2013; 62,000-beds in 2014; 47,000-beds in 2015; 48,000-beds in 2016; and 36,000 under construction for 2017, with an additional 10,000 planned.
“In 2016, occupancy is down 103 basis points from August 2015 and net leasing is up 70 basis points from August 2014,” said Clark. “Rents are reported to be up 2.3 percent across the sector from 2015. Transaction volume remains very strong and new entrants and capital chasing the sector remain very robust.”
Bayless and Churchey began with a statement on their overall views of the student housing industry today. “The sector is certainly in a great space, especially when you look at it from a public company perspective in more of the global, macro environment,” said Bayless. “When you look at the various cycles, multifamily just had an incredible run over the last five years and student housing did as well. We’re the industry that consistently delivers those returns year in and year out. There’s incredible stability in cash flow.”
“You see global investors looking at student housing as the place they want to be, especially in uncertain global times,” continued Bayless. “All of the tailwinds over the last two to three years — strong occupancy, strong rental rate growth, diminishing supply — are really being recognized as we enter an environment where other sectors might have some downside potential.”
Churchey added that many investors on Wall Street are very knowledgeable about the student housing industry based on ACC and EdR’s efforts over the last few years, but there are still plenty who are not well informed.
“What really attracts investors to our business is the stability of cash flows,” said Churchey. “When you remind investors that — if a recession happens to occur — enrollment goes up, this light bulb comes on in their head. You also have great development opportunity.”
Churchey noted that roughly 50 percent of students at most major universities are living in older developments where he and his contemporaries lived when they were at school, noting the market to be ripe with development opportunity.
“It’s really the best of both worlds,” said Churchey. “Student housing cap rates are underneath multifamily for the first time in many years, and given where we are in the multifamily cycle, I think that’s going to continue for a while. We’re very bullish on student housing.”
In response to the question of whether or not there is potential for over-investment in the student housing sector, Bayless noted that the industry is still very early in the cycle. “All of our collective holdings are just scratching the surface in terms of the market share,” he said. “When you look at the on-campus housing in the 73 markets that we operate in, the universities provide 22 percent beds to enrollment, typically reserved for first-year students.”
Bayless noted that the median age of that university-provided housing is 50 years old. “The replacement opportunity in that sector is just incredible,” he said. “When you move off-campus and look at all of the purpose-built housing that we have done collectively since 1995, that represents 24 percent beds to enrollment. The core pedestrian products represent only 11 percent of the enrollment. From a supply perspective, we are still early in the infancy of this sector. There is great opportunity for a lot of capital investment.”
The conference continued with a general session titled “How Big Was That Deal?” In this panel, Rob Bronstein, president of The Scion Group LLC, and Christopher Merrill, co-founder, CEO and president of Harrison Street Real Estate Capital LLC, discussed two of the largest transactions in the sector this year: Harrison Street’s $1.9 billion acquisition of Campus Crest’s assets and The Scion Group’s $1.4 billion joint-venture to acquire University Housing Communities from InvenTrust.
An afternoon keynote address by author, entrepreneur and six-time Emmy award winning-comedian, writer and TV Host Ross Shafer was followed by a networking reception where attendees where able to foster new relationships and explore a variety of booths from exhibitors.
The second day of the conference picked up with a networking breakfast, followed by a general session titled “Industry Leaders: Business is Great but Where Are We Headed?” In this panel — moderated by Peter Katz, executive director of IPA Student Housing Group for Marcus & Millichap — leaders in the industry discussed financing, alternative product types, enrollment trends, potential market opportunities and what to expect in the years to come.
Speakers included David Adelman, president and CEO of Campus Apartments; Nathan Collier, principal and chairman of The Collier Cos.; Donna Preiss, founder and CEO of The Preiss Co.; Wesley Rogers, president and CEO of Landmark Properties; and Paul Sorenson, COO of Blue Vista Capital Management.
Katz kicked off the discussion by categorizing the student housing industry today as being “razor hot.”
“For the past three to five years, we’ve compressed cap rates and yields,” said Katz. “The risk adjusted yields in the student housing space have garnered greater institutional, domestic and international capital. This timing happens to have coincided with a large number of core deliveries as well as numerous old school players disposing a number of vintage, value-add assets for those seeking opportunistic yields.”
“When coupled with strong operational fundamentals, solid year-over-year rent growth and an unprecedented preleasing season with decreasing supply coming online and very attractive debt and equity, welcome to the single most active transactional year in the space,” Katz continued.
When asked the differences between raising equity in the sector today versus five years ago, Preiss noted that capital and equity has never been more easily found. “There is more history — we’re more transparent, and it’s more data driven,” said Preiss. “Many see student housing as a defensive play, and the fundamentals have remained strong. These are the good old days.”
Collier noted that over the past five years, there has been a tremendous professionalization of the sector. “The sector has become very recognized and respected,” said Collier. “Investors love to see the metrics and the history of the market; it gives them confidence. We’re going to see even more of that in the next five years. My biggest concern is that we are taking the safety levels and rent levels that you would get at first tier universities and projecting them into third tier, smaller institutions.”
Over the next few years, Sorenson noted that he expects the trend of moving closer to campus or on campus to continue. “A lot of universities have delayed as long as they can putting investment into their facilities, so that is going to be an area of growth,” he said. “It will be interesting because, as you get closer to campus, land, the cost to build and rents are more expensive. Not everybody can afford those rents, so I believe the different price points and sectors that they serve will have to better define themselves in the next few years.”
Each member of the panel reported lease-up of above 95 percent portfolio-wide, and 2016 was noted to be a “record year” by Katz for transactions.
Rogers noted that he anticipates seeing new entrants into the space with lower cost of capital than has been seen in the past. “There are so many buyers today that you can handpick the buyer that is going to give you the most certainty of execution,” he said. “Given the depth of buyers and the amount of capital that is trying to enter the sector, I think we will continue to see cap rates at or near the current level for at least the next 12 to 24 months.”
Adelman noted that having a fully integrated platform inclusive of development and property management has contributed to Campus Apartments’ success because it provides them with a high level of control. “The accountability — for good and for bad — that is on you as the operator leads to greater success. No one is going to care about your property as much as you do,” he said. “Technology has made this job in this business a lot easier. There are more products in the marketplace and vendors equipped to help focus internalize their operations.”
The day continued with panels on a range of topics including “Keeping COOs Up at Night: Pitfalls and Perils at Student Housing Properties,” “Design & Development: What Today’s Student Is Looking For and How We’re Building It,” and “P3: The Challenges of Competing for On-Campus Housing Opportunities.”
During the discussion on P3s, Panelists Bob Shepko, division president of Balfour Beatty Campus Solutions, Jason Taylor, senior vice president of advisory services for The Scion Group LLC, and Jamie Wilhelm, executive vice president for public-private partnerships at ACC, each noted the importance of understanding and respecting the values of the university that you’re working with.
“It’s important to respect the fact that you’re a part of the university’s team, and that the dynamics on-campus are more important to the development than those off campus,” said Shepko.
Panelists also noted that transactions today are more sophisticated and boutique than they once were, leading the product developed in public-private partnerships to be more custom and attuned to the specific needs and desires of the university.
Wilhelm noted that he believes the next phase for P3s will be learning how to develop beyond student housing into the realm of food services, research buildings, parking and stadiums.
The day wrapped up with the second iteration of NMHC’s “DealTank” in which real student housing developers pitch their deals to a panel of expert judges — in keeping with the format shown on the popular ABC television show “Shark Tank.” Each of the five judges provided the deals with a “yes” or “no” answer following a pitch and Q&A session on whether they would further discussions with the developer on the project. This year, for the first time, one of the deals pitched received a “yes” from all five of the judges, or “sharks.”
The evening concluded with a second networking reception, where new relationships were further solidified and exhibitors were once again able to display their offerings.
The conference adjourned on Friday, Sept. 30, following three final general sessions on topics ranging from opportunities in buying and selling and estimating student demand, to international student housing and the appetite for development overseas.
The 14th annual NMHC Student Housing Conference & Exposition brought together student housing developers, contractors, managers, operators, industry suppliers and more, and gave them a platform to discuss just how robust the sector continues to be. It was impossible to leave the show without a tremendous sense of optimism for the years to come in the sector.
— Katie Sloan