SPECIAL REPORTSatellite Campuses Offer Opportunities for Student HousingOwnership, DevelopmentBy Amy Wolff SorterLast Updated: April 18, 2012 05:59pm ET http://tedrollins.org – http://www.tedrollins.netDALLAS-Mention the words “student housing investments” and what might come to mind aremultihousing projects on or near the large campuses – University of Michigan/Ann Arbor,University of Texas at Austin, University of Indiana/Bloomington. But some commercial realestate investors and builders tell GlobeSt.com that satellite or secondary campuses can bringsome nice benefits to their portfolios as well.“People are starting to look at that strategy and see it makes sense. Though the schools might beconsidered secondary, they’re in the same school system; many have a great many programs.,”comments Ted W. Rollins, co-chairman of the board and CEO with Charlotte, NC-basedCampus Crest Communities Inc., a developer, owner and manager of student housing projectsnationwide. The potential opportunity in such markets, he goes on to say, is why Campus Crestis active in them.One state that’s seeing a healthy student housing market among the so-called “secondary”campuses is Texas. With large state schools University of Texas at Austin and Texas A&MUniversity in College Station capping enrollment, students need somewhere else to go. Thosewho can afford it will go out of state, but others would rather take advantage of in-state tuitions.
Ted Rollins“The vast majority of those kids are staying in-state, and going to the secondary schools; the SamHouston States, the Texas State Universities, the University of Texas at Arlington,” commentsIsaac J. Sitt, co-founder and co-CEO of Vesper Holdings in New York City, which is rampingup its student housing investments in both flagship and secondary markets. “All of those schoolsare experiencing growth.” Some, such as Texas State University in San Marcos, are moving upthe ranks to Division I sports as well, which means more growth – and more student housingdemand. Another positive for universities and colleges in the secondary and tertiary markets isthat tuition can be less for students, making these institutions more desirable.And, according to J. Ryan Lang, commercial sales executive with New Orleans-based StirlingProperties, competition for student housing on or near main campuses is huge, and it can bedifficult for smaller buyers to enter the market. As a result, “we’ve seen them get into second-tiermarkets with a lot of success,” says Lang, who has brokered disposition and acquisition ofstudent housing in Louisiana.Kevin White He goes on to explain that the University of Louisiana at Lafayette, is the state’s so-called“secondary “ school with enrollment of about 17,000 students versus the 30,000 or so studentsattending Louisiana State University in Baton Rouge. “There was a ton of student housingactivity in Lafayette last year,” Lang comments.
None of the Louisiana schools have enrollment caps; nor do other state schools. But evenwithout the caps, the demographics are such that many satellite and secondary schools are seeingnice enrollment as well. Kevin White, director of business development with Austin-basedVirtus Real Estate Capital comments that, given the growth in the college age population, thedemographics are outpacing the amount of enrollment growth, even at schools that don’t havecapped enrollment.Barbara GaffenMany of those involved in the secondary and tertiary student markets also like the cap rates thatcome with the student housing. Virtus, for example, targets student housing properties in urbanareas and secondary university markets. “There are higher cap rates, the returns tend to be a littlejuicer, we feel as though there’s meaningful enrollment growth and a limited amount of newsupply coming online,” White says. But the satellite markets aren’t for everyone. Barbara Gaffen, co-CEO of Northbrook, IL-basedPrime Property Investors says, that higher odds are with student housing on or near flagshipcampuses. “If there’s a drop in enrollment, the secondary schools are the ones that feel it,” saysGaffen, whose company owns a portfolio of student housing properties on campuses inNebraska, Illinois, Iowa, Tennessee, Florida and Indiana. The result of dropping enrollment ishigher vacancy and a lack of rent growth in the student housing properties. Adds Sitt: “From asafety standpoint, you’re likely to be more comfortable near a University of Michigan in AnnArbor. There’s more security there that the school won’t drop enrollment dramatically.”Furthermore, Gaffen goes on to say, not all investors are hyped with the secondary markets. Theexit strategy from such markets can be difficult. “It’s not to say these secondary markets can’t besuccessful, but from our perspective, it’s risky,” she notes.
Isaac SittNor is it a good idea just to walk into a secondary market and start buying or building. “Thereturn expectations need to be different,” White says. “Going into those markets is riskier,barriers to entry aren’t what they are at a tier-one school.”The other caveat is to understand the difference between “secondary school” and “commuterschool.” The former offers some opportunity for successful student housing projects; the latter,not so much. The University of Illinois/Chicago is a satellite school for the main campus inUrbana, IL. It’s also located in a very urban area. “Those who attend UIC can go live in RiverNorth. Or Lakeview,” Gaffen notes. “People attending those schools don’t want to live close tocampus; they don’t feel the need, and they have a life other than school.”Sitt agrees, adding that while student housing should be as close to campuses as possible; thosecampuses need to be as far away from urban infill areas – the urban colleges are going to appealmore to commuter students. And those commuter students, he goes on to say, aren’t necessarilygoing to want or need student housing.Mike HartnettThere is, however, one caveat when it comes to making any kind of student housing investmentor building decision: “Whether it’s on a flagship or second-tier campus, always look forproperties in close proximity to the campus,” comments Campus Crest Communities co-
chairman and chief investment officer Mike Hartnett. “Those can be difficult sites to find and getapproved.”Nor does, “tier two” doesn’t translate into “easy money.” There is opportunity to be found nearmany satellite or secondary campuses, but that opportunity may not be available near all schoolproperties. Gaffen tells the story of a call she received about a student housing opportunity nearUniversity of Illinois-Chicago, but she wasn’t interested. “It’s a fragmented market in Chicago,”she says.The moral here, therefore, is to conduct due diligence, be realistic and have a good understandingof the market. “Just because a property is in a tier two market doesn’t mean that’s a great marketin which to invest,” White remarks. “What it really comes down to is digging in andunderstanding each specific market you’re in.”