A Rush to Meet Rising Demand for Student Housing Article originally posted on HERE on February 28, 2017 The fall semester may be months away, but developers of student housing are already cramming for the next academic year. They’ve been busy preleasing apartments while working feverishly on new projects, especially those that must be completed by summer. At the same time, they are lining up additional building sites or acquisition targets to help meet rising demand for new residences in college communities across the country. “I’d say we’re in the bottom of the third inning or the top of the fourth,” said Bill Bayless, the chief executive and a founder of American Campus Communities, using a baseball analogy to describe the sector’s growth trajectory over the next few years. Shared bedrooms offer affordability and privacy at Casas del Rio, on-campus housing at the University of New Mexico. American Campus Communities, a publicly traded real estate investment trust based in Austin, Tex., is the nation’s largest owner of student housing. Like many of its competitors, it has been on a building spree. Last year, the company delivered seven new properties, both on campus and off, at seven universities. These included Mr. Bayless’s alma mater, West Virginia University. The projects added a total of 3,200 beds (which is how the industry measures supply and how leasing is done) in fully furnished apartments. By the end of the decade, it expects to complete 15 more ground-up projects with around 11,300 beds, according to Mr. Bayless. But the bulk of construction for American Campus Communities is happening this year, with 7,500 beds being added. “It’s a very big year for us,” Mr. Bayless said. “We have 10 new developments — $603 million in development. It is the most we’ve ever had in one year.” One addition to its expanding portfolio is U Centre on College, about a half-mile from Clemson University’s campus in northwestern South Carolina. American Campus Communities’ U Centre on College is under construction near Clemson University in Clemson, S.C., and is expected to open this fall. The sprawling complex, with 418 beds, is typical of American Campus Communities’ latest offerings. Apartments have one to four bedrooms, with private baths and the type of accouterments more common in luxury condominiums: quartz kitchen counters, stainless-steel appliances, in-unit washers and dryers, and cable TV and internet. U Centre will also provide amenities that include fitness and recreation centers, a swimming pool with a hot tub, along with a study lounge and “academic success center,” stocked with iMacs and printers. (Monthly rates start at $779 for a bedroom in one of the four-bedroom units.) “When I was in school in the 1980s, we had to live in cramped residency halls built in the ’40s, ’50s and ’60s,” Mr. Bayless said, “and when you went off campus, you often found properties that were dilapidated with absentee landlords. That was the state of student housing, and it was not conducive to academic success.” The student-housing sector — largely made up of private developers, public REITs and private equity firms — is still considered a relatively new asset class when compared with other property types. But with its growth prospects, steady revenue stream from rents and comparatively high capitalization rates, it has already become a popular investment vehicle for big institutions. (Capitalization rates, or the rates of return on investment, typically run one-half to three-quarters of a percentage point higher than traditional multifamily properties, industry analysts say.) “There’s an influx of types of capital not historically seen in this space, such as pension funds in development and acquisition,” said Ryan Burke, an analyst at Green Street Advisors, a real estate research firm. A rendering of Rise on Apache, an upscale student housing complex to be developed by CA Student Living near Arizona State University in Tempe, Ariz. The sector’s growth has been fueled largely by pent-up demand — the need for alternatives to those dilapidated off-campus homes as well as the aging and constricted stock of college dormitories. There are about three million on-campus beds nationwide that house predominantly freshmen, according to Green Street, and four million “purpose-built” off-campus beds. Mr. Bayless said the tight on-campus supply was enough only for about a fifth to a quarter of the enrolled students at many colleges and universities. And many of these dorms, he added, remain woefully outdated, devoid of the modern conveniences and privacy today’s students have come to expect. “The median age of the housing in the 65 markets we are in is 51 years,” he said. A steady increase in college enrollment has helped prompt the new construction. “The echo of the baby boom really drove enrollment,” said Fred Pierce, chief executive of Pierce Education Properties, a private company based in San Diego that has been in the student housing business for two decades. The company is one of the largest acquirers of student housing. Mr. Pierce and others noted, too, that during the most recent recession more people returned to school, further adding to the demand. A rendering of another CA Student Living project, Harbor on 6th, near the University of Alabama in Tuscaloosa. The student apartments are to be fully furnished. Nationwide this year, the top student housing developers plan to add around 47,000 beds in off-campus projects, about the same level as each of the previous two years, according to Taylor Gunn, the student housing analytics lead for the research firm Axiometrics. Many of these projects are around the campuses of larger state schools in the South, the Midwest and the West, where buildable lots are more readily available. Four of the five most active markets are in Texas, Ms. Gunn said, with Texas Tech University leading the pack with 3,700 new beds. Axiometrics estimates that at least another 70,000 beds will be delivered nationwide between the falls of 2018 and 2020, though there could be more as developers commit to new buildings and search for new construction sites. “Over all, the sector is doing great,” Ms. Gunn said. Leasing at existing off-campus developments has remained strong this year, too, while rental rates continue to grow at the relatively moderate annual rate of around 2 percent, according to Axiometrics. The national per-bed average is now around $630 a month, with monthly rates starting as low as $250 and rising to $1,500 and up, depending on the condition of a property and, more important, proximity to campus. These prices, private student housing owners maintain, are comparable to the cost of on-campus dorms, and may be lower when expensive meal plans are tacked on to the price. For the coming fall semester, just over 30 percent of existing facilities were preleased as of the end of December, according to Axiometrics’ latest count, which is ahead of levels from the last two years. But in some college markets, the firm noted, the number has been significantly higher. A rendering of the pool deck for Harbor on 6th in Tuscaloosa, Ala. American Campus Communities said 60 percent of its existing student housing portfolio was preleased for the coming academic year, which is slightly higher than at the same time last year. About 33 percent of its new developments are preleased. At CA Student Living’s off-campus properties, which include about a half-dozen new projects scheduled for completion this year, 52 percent of the beds have already been preleased, according to J. J. Smith, the president of the Chicago-based company, which is a division of CA Ventures. CA Student Living, which delivered eight projects with 4,000 beds last year, is now building near Colorado State University, Auburn University and the University of Alabama, among others. “There’s a high demand for newer amenitized, nicely furnished housing near campus,” Mr. Smith said. Besides the typical amenities like fitness and study centers, CA Student Living tries to add extra perks tailored to the various markets, like ski simulators and storage areas for Colorado State students and sand volleyball courts at many Southern schools. The company, which owns and operates about three dozen developments near 30 college campuses, expects to have at least 97 percent of its portfolio occupied by Labor Day, which is close to the overall national average of 95 to 96 percent. And to help speed up the construction, his firm and many others will typically use prefabricated and modular materials that can be easily assembled on-site. “In student housing, the construction timeline is so important,” Mr. Smith said. Unlike on other multifamily projects, a missed deadline for these developers could mean a missed opportunity to fully rent out a building for a semester. Or, maybe even for a year.