Rising Demand for Luxurious Student Housing
Housing options for college students have expanded exponentially, not unlike the choice of majors and courses now available. And after freshman year, the housing that students can move into both on and off campus is light years from what most of their parents experienced decades before in uninspired buildings with cinder block walls, few windows, linoleum floors, shared bathrooms and a communal lounge.
Now a host of trends is changing the look and feel of students’ homes away from home nationwide and creating a golden opportunity for developers, builders, architects and designers who want a piece of the growing annual student housing industry. Last year’s transactions hit $8 billion, according to Jaclyn Fitts, director of student housing for CBRE, the world’s largest commercial real estate services and investment firm.
Taylor Gunn, Director of Student Housing for RealPage, a data analytic provider for the multifamily and student housing in Richardson, Texas, agrees with those numbers and expects the market to grow.
Major Game Changers
Among the many influencers are:
- Amenities. Resorts, luxe apartment rental and condo buildings and upscale family homes are influencing the new generation of student housing that pack in a similar plethora of amenities not associated in years past with "dorm" or even off-campus living. Among the more popular are reliable Wi-Fi, saltwater swimming pools with decks, fire pits and grills, coffee bars, well-equipped gyms and specialty studios for Pilates and yoga, bicycle racks and repair shops, study carrels—yes, they study and collaborate – and sometimes surface parking when land permits.
- Pedestrian proximity. A desire for walkability is changing where houses and apartment buildings are constructed for young professionals and boomers in cities and suburbs nationwide. This this has trickled down to college campuses and surrounding areas, so students don’t have to venture far afield. On campuses where land is available, university and private partnerships are delivering housing within steps of classrooms and activity centers. When land on campus is not available, many developers work to secure sites as close as possible, so students can walk or bicycle to save time and for safety. "Students want to roll out of bed and get to campus as fast as possible," says Fitts. Some universities also provide a free shuttle service.
- Privacy. Many college students are used to having their own rooms at home, and sometimes a bathroom. This has changed the typical roommate arrangement of two roomies to a room who share a bathroom, often with many others on the same hall. Now, individual bedrooms in off campus housing are most often arranged in a unit or apartment with a private bathroom for each bedroom. "We call it bed-bath parity," says Fitts. Sometimes, two, three, four, five and even six of these bedrooms and bathrooms are grouped together, and these roommates share one communal living room-kitchen and laundry.
- Safety. The amount of concern about safety may depend on where the university is located—more so if it’s in an urban area and less if in a bucolic setting, says Fitts. Overall, it’s easier to secure both a building and individual unit through new technology on smart phone and tablet apps, surveillance cameras and keyless cards, as well as old-fashioned locks and alarms, much to the delight of students and their parents. Sometimes the new buildings are even being built in gated-style settings staffed by full-time personnel. Lighting along walks for students to get from point A to B is an additional boon, says Gunn.
- Retail. While many investors prefer to see student housing filled with as many units as possible rather than retail, some cities like to incorporate some shops and restaurants when granting approval for development of a site. "There’s not a ton of retail but some of it consistently over the last few years," Gunn says.
The industry may be dominated now by several large companies that have made student housing their prime focus such as American Campus Communities out of Austin, Texas, and Athens, Georgia-based Landmark Properties. Gunn says the top 25 owners and managers account for more than 50 percent of the market, according to Student Housing Business magazine, which publishes an annual list. But there are also Moms-and-Pops, which have been involved since the industry’s infancy, after which it began transitioning to more institutional ownership. And these days smaller companies are also entering the market and using different strategies to have their products stand out.
One company that is gaining greater recognition is Mallory & Evans Development, based in Scottsdale, a suburb of Atlanta, Ga., and part of a mechanical engineering firm started 62 years ago. As the company looked to broaden its reach, it considered different real estate opportunities to grow – from condos to mixed-use, it decided the one most promising with the best return was the student housing industry. "It seemed recession-resistant, even if not recession-proof," says Brantley Basinger, a developer and principal with the firm.
Ten years after debuting its Bellamy Greenville near East Carolina University in Greenville, N.C., its other five projects have followed its model of being in a Southeastern location in North Carolina, South Carolina, Alabama, Georgia, Kentucky and soon Florida. All are also located near large state-funded institutions for steady enrollment, preferably one-half to one mile away.
The developer has also zeroed in on a few product types such as smaller mid-rise buildings and townhomes rather than test the waters with every variation. Its recently opened Bellamy Coastal near Coastal Carolina University in Conway, S.C., which lies about two hours from Charleston, consists of 480 beds in two-bedroom or four-bedroom suites located in two-to-three-story townhouse-style buildings. All the suites are fully furnished, which includes a flat-screen TV, as well as laundry equipment. Bellamy Coastal veers more toward the modern than traditional aesthetic.
The buildings’ public spaces feature the typical array of amenities found everywhere, but the company also tries to add ones that are more market specific and to that end it conducts focus groups on campus before it builds. It has also started adding smart technology such as an Amazon Alexa that can be operated via a smartphone app to provide answers, control thermostats, request maintenance or pay a lease. At the same time, staff members increasingly are orchestrating activities—almost as cruise directors do, from cooking classes to pizza or taco parties or lectures about the need to take charge of future finances and pay off student loans, Basinger says.
Prices vary widely among its buildings—just as they do for student housing nationwide or with any other rent, according to where they are constructed, the size and number and type of amenities. Most Mallory & Evans beds range from $500 to $800 a month with a 12-month lease signed rather than for a shorter school-calendar term.
To date the company has developed a healthy niche with occupancy averaging in the mid-90s and a retention rate of between 35 and 40 percent, which Basinger terms "strong." He thinks the stars will continue to align, especially as older properties are acquired and repositioned by rehabbing them, adding value with new amenities or tearing them down and starting a new.
Sidebar: Other Options That Get Good Grades
For those parents and students who see the value in a smaller option off campus, two possibilities are attracting attention:
Homeowners see the value in vacationing at someone else’s home to save expenses and gain a more personal experience. This concept has spilled over into the student housing market. The choices have expanded nationwide through business models in the sharing economy. Students—and any age adult – can opt for a similar arrangement but on a longer-term basis, especially in the homes of boomers looking to fill their empty-nest rooms. The trend is already happening nationwide, according to Wendi Burkhardt, CEO of Denver-based Silvernest, who started her full-service business three years ago that pairs students and other housemates with available rooms in homes. "We do everything from thoroughly screening the applicants to paying the monthly rent, after charging an upfront fee of $49.99. We use algorithms to match them," says Burkhardt.
Students, she has found, enjoy sharing a home of boomers who live near a university. "Many like the proximity rather than have a long commute and the more affordable prices they might be charged, especially in high-priced rental markets. And they may be able to lower prices even more by offering services in exchange, such as cleaning or driving. The homeowner also gains companionship, a necessary ingredient for happiness and health as folks age, science has proven. To date, most of the site’s visitors are renting for six months to a year. To date, Silvernest has made at least 7,000 matches and probably more since it didn’t measure all in the beginning, says Burkhardt. Success is more likely, she says, when everyone has the same expectations—best put down on paper as far as "house rules," as well as which spaces are private – bedrooms and bathrooms – and which are to be shared—a kitchen, living room and dining room, for example.
Parents—and others—who have some cash to burn try variations on student housing as a good investment opportunity. Some might purchase a condo or small house divided into apartments near the campus for their child or others to rent as a good investment opportunity, what Gunn terms a "shadow market." This is no different than becoming a landlord but the advantages in this case are that parents aren’t throwing money away on rent for their child and they often find it quite easy to attract new student tenants each fall or semester. Those interested should be sure they follow good landlord practices, including screening tenants, putting all in writing, getting rent and a security deposit upfront, and being a good landlord or hiring a property manager.