As a new academic year begins, the outlook for the student housing industry continues to improve. A testament to the industry’s exit from the pandemic unfolds at the InterFace Student Housing conference in Austin, where nearly 1,300 attendees were able to gather in person for the first time since April 2019. This year’s event , which ends today, is taking place at the downtown JW Marriott.
The student housing industry has come together like never before in the face of COVID-19 and has truly worked as a team throughout the pandemic, with the ultimate goal of keeping students as safe as possible.
The sector‘s resilience during the pandemic and optimism about the year ahead were key talking points during the conference’s “Power Panel” on Wednesday, July 14, which brought together a consortium of high-level executives to discuss industry trends, their experiences with COVID-19, and the outlook for the upcoming academic year.
“The past 18 months have been a whirlwind of uncertainty,” began moderator Peter Katz, executive director at Institutional Property Advisors, a division of Marcus & Millichap. “While our sector has historically been classified as recession-proof, we would all now say it is pandemic-proof.”
“Student housing continues to demonstrate its risk-adjusted returns as an asset class and has clearly done so during the pandemic,” Katz continued. “This phenomenon has only heightened interest in the sector on the part of national and international investors.”
The investment community is experiencing a squeeze in cap rates coming out of the pandemic, and although total trading volume for 2020 has been slowed by COVID-19, Katz predicted a return to normal levels by the end of the pandemic. end of 2021.
“The industry is about to explode,” he said. “We expect closures for calendar year 2021 to total between $7.5 billion and $8 billion – we are getting back to where we belong as an industry.”
“Demystifying the Headlines”
The discussion continued with a focus on the sector’s experience at the start of the pandemic.
“From an industry perspective, there have been a lot of headline risks throughout the pandemic that have not matched sector performance,” said Marc Lifshin, founder and CEO of Core Spaces.
Lifshin said the negative press was largely based on tertiary student housing markets, which is misleading because most industry heavyweights like Core Spaces invest and expand in “prime markets.”
“If you look specifically at our portfolio or any of the portfolios here, our investors and limited partners had student housing in their portfolio outperforming the majority of other asset classes, if not all other asset classes,” Lifshin said. .
Core Spaces recorded 95.5% occupancy, 99% rent collection and 2% rent growth in 2020 – levels that suggest some of the pessimistic headlines at the heart of the pandemic might not have have not been indicative of true experience within the sector.
“We’ve also been focused on demystifying the headlines,” agreed Cliff Chandler, senior managing director of investments at Greystar. “The levels we were seeing in our portfolio were inconsistent with what we were reading in The Wall Street Journal, and we have spent a lot of time educating our current and potential investors accordingly.
The impact of the pandemic on development was another major topic of discussion. Wes Rogers, president and CEO of Landmark Properties, said the current mood is day and night compared to the spring and summer of 2020, which was a pretty scary time for his business with so many uncertainty in the market.
“We had several financial partners who got scared and wanted to delay a few projects,” Rogers said. “Fortunately, we had very good relations with our lenders and some of our financial partners and we completed most of our projects. We had a few deals that slipped in the fall, but every deal we were working on before COVID-19 was eventually capitalized on.
Rogers said Landmark Properties has more under construction now than it has ever had in the company’s history.
“Capital has absolutely flowed into the sector, both in terms of development and acquisitions,” he said. “We’ve launched over $2 billion in construction since the pandemic began, so we have about $3.5 billion in the ground today across the United States”
Back to school
Many universities have returned to 100% in-class learning, while others have retained a flexible curriculum, allowing students to take a hybrid course load of online and in-person classes. A decline in occupancy was seen in some markets due to a combination of restrictive university protocols as well as international student visas and the inability to obtain them.
As the new school year approaches, the committee expects students to want to be part of their college market, regardless of the mode of learning adopted.
“The reality is that students not only voted with their wallets and showed they prioritized being in the physical environment of their campus over going to school virtually from home – and that regardless learning protocols at their universities across the country – but we too really saw the benefit of parental guarantors who drove collection activity, which literally mirrored the pre-pandemic era,” said Avi Lewittes, chief investment officer of The Scion Group.
Blessing in disguise?
Rogers expects to see a lot of transactional activity in the second half of the year and postulated that the student housing sector could ultimately be a beneficiary of the COVID-19 pandemic.
“Cap rates seem to be in that 4-4.5% range, which is the lowest we’ve ever seen, but frankly we still have some trail given the risk-adjusted returns that investors can get,” he said. “Ultimately, COVID-19 is going to be a net positive for our sector just given the relative outperformance of the space.”
“Coming out of the pandemic, COVID-19 is going to be ultimately beneficial because of everything we have been able to prove as an industry – we are absolutely recession proof with extremely sustainable cash flow in times of dislocation” , Chandler agreed. “No matter the learning modality, students want to come back to campus and want to live in off-campus buildings and that’s been proven by our occupancy rates, which are in the 90s. Our industry is so resilient – start a global pandemic, and we’re still going to stabilize as an asset class.
Return to our partner website StudentHousingBusiness.com next week for more conference coverage.