Student-housing sector back in session with occupancy growth, institutional investors after rocky 2020
By Ashley Fahey
Tampa Bay Business Journal
Published: Sep 29, 2021

After what was perhaps the weakest fall on record last year for student housing, the sector is rebounding quicker than many in the space expected as the fall 2021 semester is in full swing.

Richardson, Texas-based real estate analytics firm RealPage Inc. found pre-lease occupancy nationally in August 2021 was 92.2%, compared to 87.1% in August 2020. Rents were up 2.3% year-over-year in August after months of less than 1% growth and, from January to March 2021, negative month-over-month rent growth.

RealPage found the fall 2021 student-housing leasing season saw the best year-end rent growth since 2016, despite a slow start to the season. Average asking rent is $725, as of August.

Carl Whitaker, senior manager of market analytics at RealPage, said the student-housing sector is largely seen as one of the more stable real estate asset classes. Rents at student housing don't typically see double-digit gains, like what's being observed in traditional multifamily and industrial right now, nor do they usually drop precipitously.

He said rent growth of more than 2% in August, as was seen last month, is more emblematic of a "normal" year.

"Obviously, 2020 had its fair share of challenges, but the industry seems to have responded really well in 2021," Whitaker continued, adding with more students physically present in classes this year, that's bolstered demand for off-campus student housing.

Jay Pearlman, senior vice president of advisory services at Chicago-based The Scion Group LLC, which has 58,700 beds in its student-housing portfolio across the U.S., said student housing has demonstrated its resiliency as an asset class through the pandemic.

Even last year, when many schools went remote partially or full time, Pearlman said some students opted to stay in their off-campus apartments.

"Students still wanted to be in the academic community, even if they were attending school remotely or through other virtual means," Pearlman said. "It was easier for them to do that in their off-campus student apartments than it was to do that in their other home."

In fact, some students in on-campus dormitories that closed last year moved to off-campus housing, occupancy that wouldn't have otherwise occurred in a normal year, he continued.

Still, this year is proving to be stronger for The Scion Group. Pearlman said the company's pre-lease performance is outpacing years past.

This fall, Athens, Georgia-based student-housing developer Landmark Properties Inc. delivered eight new student-housing communities, including 4,985 beds and a combined development value of $1.2 billion. The properties, 95.6% leased, are in areas that include the Southeast, New York state, Pennsylvania and California.

And, last month, Landmark formed a $784 million joint venture with New York-based Blackstone Real Estate Income Trust Inc. to recapitalize and acquire a 5,416-bed student-housing portfolio.

Wes Rogers, president and CEO of Landmark, said the firm's leaders had some sleepless nights at the beginning of the pandemic, not sure whether rent payments for student apartments would be made, whether they'd have to let tenants out of leases and what would happen to about $2 billion in new construction underway.

Capital markets for student housing — like just about every other asset class — froze through last June. Rogers said a handful of the firm's planned 2020 projects were delayed, but none were canceled. Ultimately, Landmark saw 98% rent collection through the pandemic.

In fact, Rogers said, Landmark was able to pick up two or three deals it otherwise wouldn’t have gotten if it hadn't been for the pandemic.

Landmark has a $6 billion pipeline it plans to break ground on over the next couple of years, and some $800 million to $900 million in transactions, akin to the Blackstone deal, it hopes to move forward on by year end.

"We've seen a decent amount of institutional capital in student housing since the global financial crisis," Rogers said. "(But) it has certainly accelerated, in a way that I’ve never seen, in the past six to nine months."

The company tends to acquire and build near publicly chartered state institutions with enrollments of 15,000 or more as well as select private universities, Rogers said. Of the thousands of universities across the U.S., Landmark invests or develops near less than 200 of them, Rogers said.

A recent analysis by The Business Journals found, of about 1,600 U.S. colleges and universities, 55% reported enrollment declines between the 2016 and 2020 academic years. The pandemic exacerbated enrollment challenges already facing those institutions.

As part of its investment criteria, Rogers said the firm targets universities bucking the trend that are seeing enrollment growth. Properties it has under construction now or it recently acquired are near the University of Pennsylvania, the University of South Carolina and Clemson University.

"I think there are going to be some challenges ahead for some smaller schools," Rogers continued. "Somewhere between 10% to 20% probably should not exist; there's not enough of a value proposition."

Pearlman echoed that sentiment, saying flagship public institutions across the U.S. don't lack students but many smaller- to midsized institutions are struggling with enrollment.

"That influences where developers seek to invest," he continued.

Landmark and other developers' pipeline are coming off 2020, a year in which new student-housing development was hampered by Covid-19. Most projects that've opened this semester started before the pandemic.

Whitaker said, since 2014, between 40,000 to 45,000 new beds have delivered annually each year across the U.S. Looking to fall 2022, RealPage is projecting only about 25,000 new beds will deliver, a nearly 50% dropoff in new inventory.

"A lot of developers took a pause, funding was a little harder to come by because a recession was affiliated with 2020," Whitaker continued.

That may set the stage for rent growth for fall 2022, if supply is more constrained than it typically is. But, Whitaker said, he predicts 25,000 to 30,000 new beds annually may become the new normal, as opposed to more than 40,000 each year.