Being active in the brokerage of student housing in Tallahassee, FL as well around the SE part of the country, I was fascinated by an article written by Jessica Ruderman, a senior analyst with Real Capital Analytics that appeared in Student Housing Business this past month. Jessica categorically stated, “student housing will remain a safe haven for investors. With more people returning to school during the downturn, many universities short of meeting housing needs, and state governments cutting back on construction budgets, this niche should prevail, especially as public REITs ramp up investment and smaller private players participate. In addition, the relatively small nature of the niche and low volume will together keep prices less volatile than those for the broader apartment sector.”
I couldn’t agree with Jessica more, nor do I see the distressed asset arena playing a role in the activity in the student housing market in the next 24 months. Yes, velocity is low, but by and large the student housing market is holding its own mirroring price dips in other product types. For the article in its entirety including graphs from Real Capital Analytics click here.
2 comments
Carlton – are the lender requirements the same for a buyer to do a student housing deal, as compared to say, a small office complex? Do lenders require different amounts down, or are they looking for different cap rates, for example?
Thanks…
John-Thanks for the question, its a good one.
Lender requirements can actually vary substantially between product types and also can depend on how well a particular product type is performing in a particular region, etc. (for instance, self storage projects are currently not as favorable in the SE due to more over supply than in other areas, primarily associated with the tremendous housing boom).
From a Lenders perspective, Most investment deals are based off 2 things. 1.) DCR (Debt Coverage Ratio) and this usually needs to be 1.2-1.5 in depending on product type and Loan to Cost (used to be loan to value and this still has some input but not nearly as much these days). Lenders want to ensure you have ‘skin in the game’ so they like to lend off ‘cost’.
They are less concerned with Cap Rates, that is more of a method that a buyer would use to compare alternate investments, or to analyze an investment quickly to determine if it is suitable to meet his investment objectives. Lenders look at it, but only to the extent an appraiser would reference a cap rate to derive a valuation, thus falling back on item #2 above.
Hope this helps. if you have a specific product type you are considering, I can give you some ideas from some of the sources I use for financing. I find getting away from the local lenders improves terms substantially.