Investing in Student Housing Post-COVID
About Student Housing
As a subset of multifamily, investing in student housing comes with its own unique set of challenges and opportunities. It may seem similar to traditional multifamily properties; however, there are several key differences:
One of the main benefits of student housing is the tenant base is consistent and highly visible. Tenants often pre-lease prior to the beginning of the school year, rather than signing leases on a rolling basis, making cash flow highly predictable. Moreover, leases are almost always offered on a 12-month basis, so there is no need to worry about summer vacancies. And it does not usually take long to secure new tenants if the property is well-located. Delinquencies are also less of a concern, since parents are guarantors on the lease.
Students generally want to live with other students, but certain campuses do not provide enough dormitory space. In off-campus student housing, the entire building caters to this demographic.
Premium rent opportunities
Savvy student housing operators understand there may be opportunities to generate additional top-line revenue. For example, some properties offer:
- Luxury amenities in public areas (i.e. fitness centers, study rooms, and smart home devices).
- Furnished units, which appeal to renters seeking convenience and/or high-end housing solutions.
Student housing often sees more “wear-and-tear” than a typical multifamily unit. That said, a security deposit would likely cover any significant damage. If you have not already done so, take a look at the sponsor’s pro forma. Business plans will vary by project, but they should all account for projected maintenance and renovation costs.
Is student housing recession-proof?
The National Multifamily Housing Council recently analyzed 43 years of college enrollment data. Their findings suggest college enrollment does not appear to be negatively affected by recessions. This aligns with the conventional wisdom that student housing tends to be “recession-proof.”
Think about it this way: student housing is a subset of multifamily, where employment prospects generally drive demand. As long as the economy and higher learning do not collapse entirely, young adults will want to go to college. Thus, demand for student housing tends to be insulated from macroeconomic or market-specific shocks.
College enrollment trends
Student housing is often a sound investment, particularly as the nation’s top universities continue to grow their enrollment. Students will always need housing; in fact, 41% of 18- to 24-year-olds were enrolled in college or graduate school in 2019. Building on this trend, the National Center for Education Statistics projects college enrollment will reach a total of 20.3 million by 2028 (a 3% increase from 2017).
The student housing sector is showing signs of improvement this upcoming semester, after a drop in enrollment last year. As of June, 76.9% of beds at the core 175 universities tracked by RealPage had been leased for the Fall 2021 school year. This marked the first time this season in which pre-leasing stood above last year’s figure.
If this sounds surprising, consider that many universities plan to shift their focus back from online to in-person learning, as COVID-19 cases continue to decrease. On that same note, many students who were uncomfortable or unable to attend in 2020 have now received the vaccine, and are ready to re-enroll.
Student housing differentiators
All student housing is not equal; investors should consider the market dynamics and risk/return profiles of any offering prior to investing. Here are a few key things to keep in mind:
- Supply/demand: Approximately what percentage of students live on campus? Is there enough housing nearby to support the demand for off-campus housing? This will vary greatly by location. Some cities may have zoning laws, which restrict the supply of new units. Post-COVID, another factor to consider is that many dormitories are de-densifying, which in turn, should increase demand for off-campus housing.
- Public vs. private universities: According to Yardi Matrix, year-over-year pre-lease occupancy growth has been driven mostly by large public universities, indicating strong demand among more affordable universities offering in-state tuition.
- Proximity to campus: Most undergraduate students want to live close to campus (ideally, no more than 0.25 – 0.5 miles away). If the property is within walking distance of students’ schoolwork and social life, it likely offers a competitive advantage. Alternatively, students may still be interested in a property if it is near accessible transportation or a direct shuttle service, which can be taken alongside their peers.
- Pre-furnished units: Move-in day is much less stressful when students don’t need to worry about purchasing large items, such as a bed, desk, and dresser. After all, this type of housing is transient; students will leave and want to purchase their own furniture later. If off-campus housing provides the convenience of a dormitory, it may draw more interest, and hence a more compelling investment thesis.
Want to learn more about how EquityMultiple can facilitate your participation in a student housing investment? Please don’t hesitate to contact our Investor Relations team via email at email@example.com or by scheduling a call today.
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