Tricked out student housing equals big developer profits
On a Wednesday afternoon, in a luxury apartment building called “The Standard,” which would fit right into any major metropolitan downtown, sunbathers line the edges of the rooftop’s infinity pool. Sweat flies in the bright fitness center as loud pops emanate from the racquetball court, and a young woman at the concierge desk phones upstairs to a resident about a package. Only this is not any residential building. It’s student housing at the University of Georgia in Athens.
“What you’ve seen over the last several years has been more of an urbanization of student housing, where more institutional players are coming in and developing these higher-end, more urban-style properties to cater to the needs of today’s college students,” said Wesley Rogers, CEO of Landmark Properties, the Georgia-based developer behind The Standard—a brand of student housing residences that raise the standards on student living.
Landmark, like other student housing developers, is profiting from ever-growing demand as enrollment grows and on-campus housing ages. Rogers said Landmark grew 40 percent even during the recession and is plowing ahead with several new projects.
The Standard, a high-security building, offers students luxury apartments with granite countertops in the kitchen and en suite bathrooms for each bedroom. The building is walking distance to campus and has on-site parking. What really draws attention, though, are the added amenities. The pool, fitness center, saunas, game room with large-screen televisions and even a golf simulator.
“Just look around for yourself to see. It’s always a fun time here,” said John, a junior at the university, swimming up to the side of the pool.
“Everybody needs a way to unwind. You can’t study all the time. Everyone needs to have their outlet, so it gives everyone their outlets,” said Ashton, another junior, joining the poolside chat with her friends.
Developers claim they are just catering to student demand, but really they are competing in an ever higher-stakes play for a real estate sector that until now had been largely ignored. As enrollment at universities increases, so does housing demand and competition to get that top-tier demand.
“Student housing in general is a relatively young industry. Developers really hadn’t focused on student housing until about 20 years ago, and for the most part students were living in dorms that were built in the ’50s or ’60s,” said Brendan Coleman, managing director at Walker & Dunlop, a commercial real estate financing firm.
Only three Real Estate Investment Trusts (REITs) are in the space—American Campus Communities, Education Realty Trust and Campus Crest Communities. Landmark sold its Standard property in Athens to ACC.
“Now we’re starting to see institutional-quality developers and investors, so it’s getting a little bit more competitive to go after the market share. We’re seeing a recent trend really in student housing to be more like hospitality and hotel-style luxury,” Coleman said.
It seems counterintuitive, with all the talk of over-the-top college tuition and crushing student loan debt, but while the price of on-campus university housing has jumped 15 percent in the past five years, according to PricewaterhouseCoopers (PWC), off-campus developers have been able to control costs because it is all they do. They are simply more efficient in construction and management.
Demand for luxury is strong, and developers specifically target large, public universities, where tuition is lower. They also rent by the bed, not by the unit, which allows them to keep costs down for students.
“There’s an extra cost burden, but it’s not that much more. If it’s $1,000 more a semester, say, it’s worth it,” said Coleman. “The competition is going to be older, dilapidated, and in many cases, unsafe product. It’s not sprinklered, it’s not up to code.”
In fact, the most expensive units lease the fastest, according to Rogers, who has developed “Standard” properties in Baton Rouge, Louisiana, and St. Louis and has another project underway in Athens, which will have a VIP entrance.
“We’re going to be catering more to the probably 10 percent of our unit types, making them super premium, offering larger square footage, more amenities for those residents, maybe two-story rooftop townhomes with private rooftop patios,” said Rogers.
While the large millennial generation is aging out of its college years, enrollments are expected to continue to rise, fueled by foreign students, who tend to have deeper pockets.
“They [foreign students] end up living off-campus more often than living on campus, so there is this tremendous wall of demand for student housing coming from foreign students, and so the players are trying to jump into the business and take advantage of that increasing demand,” said Mitch Roschelle, national practice leader for PWC’s Real Estate Advisory.
Analysts warn that some markets with large flagship schools may already be getting overbuilt, but for the most part demand still outweighs supply. Universities are outsourcing more of their housing needs, often in joint partnerships with private developers. It simply saves the schools money in an already tight budget environment.
Luxury is becoming less the exception and more the rule, as developers compete with each other for the student population, and as students now seem to demand everything from tanning beds to beach volleyball courts in their housing.
“My parents call it Shangri-La,” said Ashton, just before swimming back out to the infinity edge.