Student housing investments — are they right for you?
Higher education is appealing in any economic climate: Parents are in a better position to afford tuition and college-related expenses when the economy is good. In a downturn, families may turn to college for a competitive edge in a competitive job market, or view it as a productive way to weather a challenging economic climate. The traditional view of attending college is that it expands one’s options — better to have that degree even if you don’t need it, than not have it if and when you do.
According to the National Center for Education Statistics, both public and private colleges and universities in the United States will experience a 15 percent increase in enrollment between the fall of 2010, and the fall of 2021. This includes institutions that offer degrees other than traditional four-year bachelor degree programs, such as associate and post-graduate degrees, but does not include institutions that don’t participate in federal financial aid programs.
One explanation for this enrollment projection lies in the numbers: the population of 18- to 24-year- olds will increase by 2021, expanding the pool of typical college-aged individuals. Between 2010 and 2021, fall enrollment for first-time freshman is expected to increase by 14 percent.
So what do college students and their parents do if the campus dormitories are full? Or if students (or their parents) find on-campus dorm life distracting or otherwise unappealing? Many budget-challenged state institutions simply cannot build student housing quickly enough to keep up with the enrollment. Increasingly, as student populations continue to swell, the answer lies in facilities that cater specifically to college students and their particular set of housing needs.
The appeal for residents
These student housing complexes aren’t just apartment homes. Many offer amenities you would expect to see at an upscale rental complex, such as swimming pools and outdoor lounging and recreational areas, tanning salons and exercise rooms. They also offer students the privacy that dormitories lack, with private bedrooms, baths and kitchens and designated study zones. Many units plan recreational activities with residents, such as volleyball competitions and social barbecues. Increasingly the units are rented as “all-inclusive” with the rent including utilities, cable television and high-speed Internet connectivity. This appeals to the student residents while making budgeting easier on their parents.
Additionally, most of these specialized housing units are near a campus, easing the challenges of class scheduling and attendance while avoiding the cost of transportation.
Overall, student housing design and logistics provide student residents with the perks of a private college “home” and all the social aspects of a memorable college experience.
The appeal for investors
According to this article in Investorplace, student housing burgeoned into a $200 billion global market in 2012. Single-digit vacancy rates indicate there is additional room for developers to build, or convert existing residential units — both single- and multi-family — into planned student spaces. These figures rank student housing as a desirable high-performance real estate asset capable of offering double-digit returns on your investment.
Risk and patience
According to Texas-based CWS Capital Partners, a real estate investment management company, investors considering a student housing venture should be prepared to tolerate a higher risk in exchange for a higher reward than what you would expect from an investment in a luxury apartment community. You should also expect a two- to five-year holding period from the point at which you make your investment.
There are existing Real Estate Investment Trusts, or REITs, that specialize in student housing, as well as banks and private equity firms that have been drawn into this investment space. If you currently own an existing complex and are interested in converting it into student housing to increase the worth of your investment, there are also companies that specialize in acquisitions well-suited for student housing.
Some companies also invest in student housing as part of a larger portfolio of specialized properties, such as medical or upscale properties. A company that holds a large number of properties in its portfolio, or that has more property diversity, may be appealing to many investors.
Geography is key — not just each development’s proximity to campus, but the cities and states in which they’re located. Look in areas that have a shortage of on-campus beds, or that real estate asset management companies view as being lucrative targets for acquisition, management or additional development. Currently, Texas, Arizona and Washington, D.C., are some locations that either need additional student housing or have conditions conducive to such developments. Other states where you might expect a need, such as California or Massachusetts, have actually been able to keep up with on-campus demand — at least thus far.
With some of your own research, you might find that investing a student housing makes sense for you. Think of it as another way to invest in the future of higher education — without being on the hook for college tuition.
The Matterhorn Group offers investors an end-to-end experience in real estate investment. To learn more about the potential of investing in student housing, call us at (708) 588-9611 or contact us online.