Regulators Gave Room To Lend Billions Of Extra Dollars
A report from Multi-Family Biz. “Some 47,700 new beds are expected to come to market in privately-owned, purpose-built student housing properties in time for the Fall 2016 semester, with university markets in the Southeast region the primary target, according to Axiometrics, a provider of student housing and apartment market intelligence. The new supply to be delivered this year is the third highest ever for privately-owned properties, behind 2014 and 2013.”
“‘Though deliveries of new supply are not as high as they were a couple of years ago, demand remains strong, and students are generally absorbing the new beds,’ said Jay Denton, senior vice president of analytics for Axiometrics. ‘One thing that differentiates student housing from conventional apartments is that the distribution of new supply can change dramatically year to year. As construction near one school meets the demand, a building boom will begin in another university market.’”
From National Real Estate Investor. “Investors are buying more student housing properties than ever before. ‘Last year was the biggest year ever, investment sales-wise,’ says Fred Pierce, CEO of Pierce Educational Properties. But hang on tight–this year is likely to be even bigger given the pace of transactions so far in 2016. From the start of 2016 through mid-May, investors traded more than $3 billion in student housing properties, up from $2.1 billion over the same period in 2015, according to data from Real Capital Analytics (RCA). In comparison, in 2014, investors bought a total of $3.2 billion in student housing properties over the course of the whole year.”
“The same trends that made last year so busy loom even larger this year. Capital from around the world is interested in finding a home in commercial real estate properties in the U.S. At the same time, more investors see student housing as a core type of commercial real estate rather than a niche market. And a variety of financing sources are eager to provide permanent loans, equity and mezzanine financing. ‘Interest in the student housing sector is as high as it’s ever been and is increasing,’ says Doug Opalka, senior managing director for Holliday Fenoglio Fowler (HFF).”
“The largest buyers include a growing list of institutional investors. ‘Pension capital has been very interested,’ says Pierce. ‘I expect to see more and more capital allocated to student housing and more and more institutional investors enter the business.’”
“International investors are also pouring money into student housing. ‘There are billions of dollars in transactions from foreign capital sources—Canada, Asia and the Middle East,’ says Opalka. ‘The amount of foreign capital is meaningful and accelerating. Where else does it make sense to invest capital?’”
“Developers are also finding opportunities in buying and upgrading older assets. ‘The value-added deals are the ones where I see the most juice,’ says Lee Weaver, senior vice president for Northmarq Capital. Permanent loans at low interest rates are available for strong properties and sponsors. This type of loan is likely to be from one of the GSEs’ program. ‘Fannie Mae and Freddie Mac are still the best lending source for permanent debt, for both price and loan dollars,’ says Northmarq Capital’s Weaver.”
“The federal officials that have overseen Fannie Mae and Freddie Mac since they were seized in 2008 have given them a lot more room to lend. Last year, the Federal Housing Finance Agency ruled that loans to affordable housing properties are excluded from the limits on their commercial real estate lending. Student housing financing still counts under the lending limits, according to the regulators, but the change gave Fannie Mae and Freddie Mac room to lend billions of extra dollars—and they have been very busy.”
“But Fannie Mae and Freddie Mac can’t cover the permanent financing needs of all student housing properties. The agencies prefer to lend on student housing that serves large universities with more than 10,000 students enrolled in classes. Life company lenders also offer permanent financing for student housing with the best locations and amenities, often at very low interest rates.”
“As institutions commit more cash to student housing, they can buy larger properties. For example, in 2015, the Arizona State Retirement System (ASRS) increased its investment commitment for a student housing partnership with Pierce from $100 million to $300 million. Institutions like the ASRS and the Canada Pension Plan Investment Board have already acquired a total of $1.8 billion in student housing assets this year in the U.S., against just $133.3 million in dispositions. Institutions were also large net buyers in 2015.”
The Arizona Daily Star. “Tucson should see more student-housing towers rise in the coming school years as developers enjoy high occupancy rates and rental income nearly twice that of market-rate apartments. A newly completed complex, Hub At Tucson II, opens this school year and sits next to other towers. The units are leasing as fast as they’re being built — a trend that’s being seen nationwide in college cities. ‘Nationally, student housing is booming,’ said Bert Kempfert, senior vice president of investment properties and multifamily developments for CBRE. ‘In the first quarter of 2016, there was a record $2.6 billion in capital poured into this sector.’”
“The lure of the towers has already had an impact on neighborhoods surrounding the university, as students leave older rental houses for the location and amenities of the towers. Perks at the towers include things such as on-site salons, rooftop pools and party buses that rotate between the properties and North Fourth Avenue/ downtown nightlife. The exodus from surrounding neighborhoods has been so significant that the city and county are promoting a campaign to encourage landlords to sell their rental homes and return the area to homeowners.”
“Is Tucson prepared to absorb more? ‘I think we’re close to being oversaturated in student housing,’ said Hank Amos, president of Tucson Realty & Trust Co. ‘I think there’s room for somebody to fill another one, but somewhere along the food chain someone is going to feel the pain.’”
“He said the newer towers, with their proximity to campus and high-end amenities, will have an impact on the older properties farther out. ‘We’ve built so much student housing and not all students can afford it,’ Amos said. ‘I don’t know where the tipping point is.’”
The Journal Star. “By the middle of this month, two more towering student apartment complexes will open their doors, adding more than 1,200 beds in downtown Lincoln. Since 2002, student housing developments built by both the University of Nebraska-Lincoln and a slew of private companies have added 5,000 beds to the areas surrounding campus, changing the face of downtown Lincoln in the process.”
“Aspen Lincoln is also wrapping up construction on three new buildings ahead of move-in scheduled this week. Aspen operates 14 student housing complexes across the country, including the 632-bed, 182-unit complex in Lincoln. Aspen reported 60 percent of its Lincoln units were leased, and general manager Katie Sloan said community events for tenants began this summer.”
“The market is now over-saturated, one apartment manager said. ‘There’s nothing wrong with people building new operations, but I think they built too many beds,’ said Jerry Shoecraft, general manager of the 50/50. ‘There is concern — not on our part — that some buildings might not even be 50 percent leased.’”
“Shoecraft said while he believes UNL’s enrollment will eventually reach former Chancellor Harvey Perlman’s goal of 30,000 students, it won’t happen quickly enough to fill each of the student housing options for the next few years. ‘I think the market needs to settle down for a couple of years,’ he said. ‘Everyone is pulling from each other now, and no one will get 100 percent.’”