Private sector eyes profits as government budgets shrink
"Universities are ill-equipped to meet this growing demand because they have housing inventory that is old and obsolete, and they don't have the money, expertise or desire to build new housing," said Haendel St. Juste, a REIT analyst at Keefe, Bruyette & Woods.
"In addition, the large state schools are dealing with budget caps. When you talk about funding to build new housing, this is not at the top of the priority list."
This is where the private sector comes in.
"The student housing REITs have the development capability, but more importantly they have access to capital via the public market. And also, because they are large, established organizations they have access to construction financing to meet this need for housing," St. Juste said.
While new construction elsewhere remains dismal, Rollins said his company is completing six projects this summer and will be kicking off another six to eight developments in the autumn.
"Student housing remains a highly fragmented industry," Poskon said. "There are three publicly traded REITs, but there are a whole slew of local and regional players, some of which are sizable" -- which can be a problem because it is relatively easy to overbuild small college markets.
Student housing revenues are less affected by economic forces such as job growth, changing interest rates, the spread between cost to own vs. rent, and the strength or weakness of the homebuying market, Poskon said. "Most people think about student housing as a tangent to multifamily, but the drivers are different: enrollment for student housing, and job growth for multifamily."
And, oh, by the way, none of this should hurt the small-time real estate investor who buys a house or two near a campus for student rentals. The evolution of students' housing needs hasn't changed since the 1950s: freshman live in dorms; sophomores and juniors stay in dorms or move to apartments; seniors and grad students find a rental house.
There's no new learning curve for this business.
Steve Bergsman is a freelance writer in Arizona and author of several books. His latest book, "Growing Up Levittown: In a Time of Conformity, Controversy and Cultural Crisis," is now available for sale on Amazon.com.
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