The Student-Housing Niche: The Student-Housing Sector Is a Growth Market Worth Studying by More Lenders

By Bergsman, Steve | Mortgage Banking, January 2016 | Go to article overview

The Student-Housing Niche: The Student-Housing Sector Is a Growth Market Worth Studying by More Lenders


Bergsman, Steve, Mortgage Banking


In the world of real estate investing, when a sector gets "hot," it generally stays hot for a long time--perhaps a decade or more. And then it doesn't just peter out, it usually goes bust--dramatically and with serious investor pain inflicted along the way. [paragraph] As we saw in the years leading up to the Great Recession, the deeper problem is that during the so-called hot years the financial sector makes significant adjustments to liquefy the boom sector, which only causes more pain when the cycle shifts. [paragraph] It's good to be reminded of these patterns when discussing a current boom sector such as student housing, which has attracted a host of new investors and capital sources into what was once a very narrow, niche market. [paragraph] Freddie Mac, McLean, Virginia, is generally considered the largest lender in the student-housing sector. In 2014 the company did record volume of lending for student housing, at $1.2 billion. [paragraph] When the numbers for 2015 are finally tallied, Freddie will "exceed the volume we did in 2014," says Rich Martinez, Freddie Mac's vice president of production and sales. [paragraph] The trend line is similar for Fannie Mae, Washington, D.C. In 2014 the company tallied $831 million in total lending for student housing, reports Joseph Stepchuk, a director and national account manager at Fannie Mae.

When Mortgage Banking contacted Stepchuk, he wouldn't predict if 2015 would be better than 2014, but he did say Fannie Mae completed, "a little over $600 million in loan purchases as of the first half of 2015," which put the company on pace for another record year.

Partly, the success of student housing as of late has to do with its position as a piece of the bigger multifamily housing pie--a deliciously large sector that includes conventional apartment dwellings as well as senior housing, affordable housing and student housing.

Since the Great Recession, multifamily housing has been the most desired entree in all of commercial real estate and all its subsectors have benefited.

Demographics helped

On a granular, sector-specific level, demographics have favored student housing as well.

The millennial cohort, which is now bigger than the baby boomer generation, was born in the years 1982 through 2004, so many of them were entering college in the early 2000s at a time when most universities had not replenished student housing stock on campus.

Smart developers and operators realized opportunities existed to privately develop modern student housing approximate to college campuses to accommodate the first wave of millennials coming to post-secondary education.

The effect of the millennial generation transformed colleges and universities.

According to the National Center for Education Statistics, Washington, D.C., enrollment in degree-granting institutions increased by 15 percent between 1992 and 2002, and then jumped another 24 percent between 2002 and 2014. In other words, between 2002 and 2014, the number of people enrolled in degree-granting institutions jumped from 16.6 million to 20.6 million.

In addition, the sector proved itself during the recession years, giving student housing one of those "recession-proof" labels that always seem to blow up somewhere in the future. It just didn't in the last recession.

"If you were a student-housing developer with a property near to a university with 25,000 students or more and your property was next to campus, unlike conventional multifamily, you know you have a tenant base to pull from and during recessionary times, historically, more people go back to college because the job environment is so challenging," says Kevin Larimer, national director of student housing at Berkadia, New York.

"The student-housing sector performed very well during the economic downturn, and by 2010 and 2011 it was generally accepted that student housing was a recession-resilient industry," he says. …

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