Student housing properties are becoming a hot commodity among investors. Preliminary totals show for 2014, student housing investors spent between $2.8 billion and $3 billion purchasing properties. The official count will be released in soon, in February from CBRE.
Jaclyn Fitts, director of student housing for CBRE’s capital markets group, says “There are a lot of new people in the market for student housing properties.” There are a multitude of factors that make investing in student housing so attractive right now. As it becomes more appealing to those who grasp the benefits of investing in this industry. Student housing has demonstrated resilience through rough times, financing has become more available, and as we diversify and become more accepting to student housing investors are jumping at the opportunity to build their portfolio
The new student housing investors bidding for properties tend to include private equity funds and institutional investors. ” There are now four or five more private equity funds specifically tasked to buy student housing,” says Fitts. That’s in addition to the private equity firms that have been in student housing for awhile, such as Harrison Street and Blue Vista.
During the great recession, average prices per bed in student housing properties stayed strong, when there was a 20% drop in prices for apartment properties. Due to these statistics, “The industry demonstrated resilience,” says CBRE’s Fitts.
According to Fitts, the student housing industry is in high demand. However, with the influx of new investors that dove into the market, property prices have gone up, along with volume of deals. This has an inverse effect on capitalization rates, driving them down. Investors are seeing cap rates as low as 5.5 percent for the properties within walking distance of tier-one universities. For properties a bus ride away from tier-two or tier-three schools cap rates are as low as 7.5 percent.
Financing has become more available for student housing properties and at more attractive terms. Lenders are more accommodating as student housing becomes more of a norm. Fannie Mae and Freddie Mac dropped adding an interest rate premium to loans for student housing properties.
Developers are trying to keep supply equal with demand , therefore are building student housing quickly. Developers completed 4,149 student housing beds in 2014,compared to 1,926 completed in 2013. Occupancy rates were at 96 percent in 2013 with a slight drop to 95 percent in 2014.