Commercial Investment Real Estate March/April 2013 | Page 19
debt, which greatly minimizes the project’s
impact on its credit rating/debt capacity.
High Expectations. Institutions across the
country are facing the same situation: Much
of their on-campus housing stock consists
of 1950s- and 1960s-built dormitories that
may no longer carry debt but still require a
tremendous amount of ongoing capital for
operations and maintenance and fail to meet
the higher expectations of today’s students.
As a result, university administrators need
to replace these outdated buildings with
new residence halls featuring the amenities
that attract students. Furthermore, because
universities only house about 30 percent
of students on campus, there is opportu-
nity to modernize housing both on- and
Fragmented Sector. Te top 10 student-
housing owners own fewer than 10 percent
of total housing stock, so there is also oppor-
tunity to consolidate. Trough consolida-
tion, national operators can take advantage
of management efciencies and economies
of scale and improve the operating perfor-
mance of stock acquired from local frms.
However, some local student-housing
frms know their market extraordinarily well
and could teach the national frms a thing or
two. Just as with acquisitions in other sec-
tors, it’s important to take the time to explore
what’s being done well.
Despite attractive demographic and
national trends, savvy student-housing
investors must pay very close attention to
the individual markets they are consider-
ing for investment. Tis includes gaining
a thorough understanding of a market’s
supply/demand fundamentals, barriers to
entry, and the overall campus culture of the
While occupancies and annual rent
growth are great macro-level data points
to test a market’s overall health, investors
should dig deeper to ensure that they are
identifying well-positioned opportunities
within a specifc market. For example, a
luxury student-housing project may not
work at a public commuter institution with
a price-sensitive student body, but it could
work at a state fagship institution with a
signifcant number of nonresident students
willing to pay a tuition premium for the
out-of-classroom experience. Tis type of
market analysis applies to both on- and of-
campus housing investments.
Finally, student housing is management
intensive and the experience of the manage-
ment frm or operating partner will play a
key role in infuencing investment perfor-
mance. Te compressed leasing cycle, high
tenant turnover rate, and unique property-
level training require a seasoned operations
team. Best advice: Select your management
partner early in the process.
Dan Bernstein is executive vice president
and chief investment officer of Campus
Apartments based in Philadelphia. Contact
him at [email protected].
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March | April | 2013