Multifamily Minute

Ruth: Coming up! On Multifamily Minute...

Travis Prince: We anticipate 2025 to be a major recovery year from a capital markets perspective because there's a ton of liquidity in the markets there's, probably 450 to 500 schools with some sort of purpose built student housing, that is proximate to those schools and serves those students. And there's been some significant changes, especially in what we've seen with this latest generation of students. They're really, looking for, experiences, there's so much more than just the learning element of the university experience.
We saw a lot of record applications enrollment growth really focused and centered around. These experiential schools with incredible athletic departments and cool towns. The capital allocation to those markets has continued to intensify.

Ruth: All that and more on this episode of Multifamily Minute! by Cushman & Wakefield!

Sam Tenenbaum: Welcome to the Multifamily Minute, hosted by Cushman Wakefield, where we dive into what's on the minds of investors, operators, and market observers in the multifamily commercial real estate sector. I'm your host today, Sam Tenenbaum, Cushman Wakefield's Head of Multifamily Insights, and today I'm joined by Travis Prince and Adam Loftin, who lead our Student Housing Capital Markets efforts nationally.
Gentlemen, welcome to the show.

Adam Loftin: Hey Sam, how's it going?

Travis Prince: Happy to be here. Excited to be talking student housing with you.

Sam Tenenbaum: It's an exciting time in the industry, we're, we're getting the school year getting going, getting the, this, or the semester ending. We're getting ready for second half of the year.

Travis Prince: College football playoffs with the new expanded format. It doesn't get any better than this.
Private equity, talking about coming in and buying schools football teams. It's a radical time, in, in the world of U. S. universities.

Sam Tenenbaum: what a fortuitous time that we, we have you guys joining us today, then given all of the, the craziness in the university world these days. I think the best place to start our conversation today is what do we mean when we talk about purpose built student housing, can you give us, an overview of the sector?

Travis Prince: Yeah, of course. And I think If you talk about student housing to anybody my age, and I'll be 48 the end of this month, you're thinking of, living in a dorm, on campus, no air conditioning. Double occupied, sharing the bathroom facilities with 40 of your favorite buddies. We've come a long way from that, for sure.
And to clarify, today we're not talking about on campus dorms. We're talking about off campus, privately held, student housing. And really, the evolution, from, when I was in school, and if you did move off campus, you were going to an apartment building or a duplex or a single family home that was close to campus.
And about 30 years ago, developers started looking at the demographic data and realizing that universities were growing at a tremendous rate and not able to keep up with the housing demand. So I went to a student on campus and thought, we need to provide a living solution dedicated to students off campus.
And so that's really, late 1990s is the evolution of the first. true bed basis student housing and when we say that it's exactly that. It's the biggest differentiator is that the lease is predicated on the bedroom versus on the unit. So the most typical configuration that we see across the country is a four bedroom four bath where the student has their own private lockable bedroom and ensuite bathroom and they share a kitchen and living room with The rest of their friends. What's interesting about this also is that it shifts the financial obligation for the parent to just that bedroom, as opposed to the entire unit, which is obviously very attractive to those parental guarantors. Those initial projects were typically, as long as they were in the, in proximate, within five miles of the school, they did very well.
As competition built over the years, there was more and more a focus to being closer to campus. Post GFC. Really campus adjacent and pedestrian to campus became the singular focus. And, that's when we saw the evolution of what we have today of a lot of this off campus housing growing up, in mid and high rise product, in these markets across the country. And then I think, from a design perspective and from an amenity perspective, these are very highly amenitized gyms. tanning facilities, resort style pools, game rooms, and then post COVID, the phenomenon that we saw was really a growth in common area study spaces and meeting spaces for those students to congregate and share the learning experience off campus.

Sam Tenenbaum: So I live, a little bit about me, I live in Austin, Texas, which is obviously a big university town. And I feel like that little summary, just that little synopsis, just perfectly encapsulates the story of the University of Texas in Austin. Early on in the 90s, there was this development in an area called Riverside, relatively cheap housing.
Shuttle to the school and then all of a sudden West Campus, which is the immediate area directly obviously to the west of where campus is Got really built up and is quickly becoming one of the densest places in Austin as a function of all of this Walkable highly amenitized student housing product that exists So I think you know, I think you did a great job at least summarizing what's happening in Austin Let alone what's happening across the US

Travis Prince: Austin is one of the best case studies for sure. In terms of, the neighborhood overlay and the densification of West Campus, it's really, incredible to see how that neighborhood has developed and offered, an incredible place for students to live, socialize, be proximate to the university, and then, keep the student population from being dispersed all over Austin, Texas.

Sam Tenenbaum: You tell me a little bit about the landscape of student housing? Obviously there are a lot of schools out there in America that investors have the opportunity to invest in. How do you guys think about categorizing those schools into any sort of reasonable framework?

Travis Prince: Adam, you want to take that

Adam Loftin: Yeah, absolutely. So the participants in the student housing sector, as you said, they, there's, probably 450 to 500 schools with some sort of purpose built student housing, that is proximate to those schools and serves those students. Of those schools, there's about 220 that fall into, the top three tiers in a four tier system that we, that we really rely on to categorize markets into and to study those and to Categorize the opportunities within those markets.
And everything from tier one, which is your largest, flagship state schools, are usually in a power four or five conference, football conference. Those are your tier one schools all the way down to your tier fours are, smaller private schools, less than 10, 000 students, and regional schools and tiers two and three of those schools in between. And so that's the tier system that we really rely on, to really define this market a little bit better.

Sam Tenenbaum: Can you talk about how the demographics within those tiers have evolved?

Adam Loftin: Yeah. And again, as Travis was describing that it's really a pre and post COVID, world here and, in student housing, it's no different. And there's been some significant changes, especially in what we've seen with this latest generation of students. They're really, looking for, experiences, And there's therefore been, a lot of demand for those larger schools.
Those Tier 1 and 2 schools are seeing record, enrollments and record applications to enroll. And what that has led to is increased demand for those, schools. For those schools. And so we're really seeing, a even more significant bifurcation, of those top tiers away from the smaller ones, especially in the performance of, their student housing, at those, within those markets.

Travis Prince: one thing to add to that, I think, when you're talking about capital flows and investment within the sector, we saw a trend probably starting 10, 15 years ago. Towards a heavier concentration with the larger schools, and that only intensified through COVID based on what Adam was saying.
We saw a lot of the, a lot of record applications and enrollment growth really focused and centered around. These experiential schools with incredible athletic departments and cool towns. And that's the, the capital allocation to those markets has continued to intensify.

Sam Tenenbaum: I think that's, the best synopsis of the landscape of student housing that I could have possibly hoped to get from you guys. Can you tell me a little bit about your team, how you're structured, where you are, what your accomplishments have been over the last few years?

Travis Prince: Sure, yeah, we are a large, decentralized full services, capital markets team. So I lead the investment sales efforts. I'm, here in Tampa. with several other investment sales team members. We've got folks in Atlanta, in Philadelphia. We've got debt and equity teams in Phoenix and in New York. So when you consider production, execution, all of the support, our collective team is over 20 strong. So fairly large. And in major metros. Across the country. Situated to, to execute on a national scale. Other than Adam, who is in Lafayette, Louisiana. So we're trying to, we're trying to move him to a bigger city.

Adam Loftin: It's a tier two market.

Travis Prince: There's student housing there.

Adam Loftin: Yep.

Travis Prince: It's close to LSU.

Adam Loftin: There you go.

Sam Tenenbaum: It's a good school to be close to. I'm sure there's a lot of fun things that happen at LSU.
Adam Loftin: Oh, absolutely. Both, Louisiana Lafayette and LSU are both, both great schools to be near. No shortage of things to do.

Travis Prince: And as a Bengals fan have produced the number one quarterback wide receiver combo and. Joe Burrow, Jamar Chase.
Too

Adam Loftin: very welcome.

Travis Prince: lot of yards, very few wins.

Sam Tenenbaum: I remember, I become quickly a UT fan and I remember Joe Burrow in his senior season going up against UT. I think it was like the second game of the season and UT's defense was getting all the accolades. They had a bunch of NFL draftees and they just got absolutely dismantled by Joe Burrow and Jamar Chase and the LSU offense.

So that was Sort of a real wake up moment, I think, for UT fans.
Adam Loftin: Yeah, UT fans will remember 3rd and 18. That was the big play. So yeah, it's a great game and hopefully we can get back to there. But, I'm not, don't feel too bad for UT fans this year.

Sam Tenenbaum: yeah, no kidding. So with that football, discussion aside, can you talk about how the student housing market is doing today? What are the strengths, where are the weaknesses in the market? Where do you guys see, the opportunities as well?

Adam Loftin: Yeah, it's funny that, it's actually the football being the perfect segue into this topic. We actually released a research report, a few weeks ago, that really we dove into the performance of the power four, The largest football conferences, and for the first time ranked the markets within, those conferences and did a deep dive into, the sector's performance within all of those markets.
And, so encourage everyone to check that out if they're more interested to learn, the relative performance of the schools , in tier one and tier two markets that make up the power four conferences. And that's really where, the sector is performing, it's best. Like I was saying before, there's been record, applications and demand for, those schools in those markets.
Those are our largest and most significant student housing markets. And, that has driven, occupancies to be at, historically high levels, the past few years and has also driven, some, significant rate growth, in most of , those markets as well. . With the student sector, you're always having to monitor enrollments, demand for those schools. New supply for those schools. 'cause it can be a very sensitive market, with the way that the turnover happens every single year. That drops in enrollment or increases in supply can have a pretty significant, impact on the performance within those markets and the, the properties that are located there.

Travis Prince: Yeah, I would just add, very interesting phenomenon. Student housing has always been considered a recession resilient asset class, counter cyclical asset class, the economy. Struggles, kids go to school at a higher rate and stay in school longer, traditionally, but, COVID was a very interesting case study in the overall, health of the U.S. university going long term. I think there was a big sense that the university experience, was over as we knew it. Everybody thought that the technology behind distance learning would take over, and that would be the great unraveling of the student housing sector. It was just the opposite.
What we found, was that there's so much more than just the learning element of the university experience. Kids actually gaining independence and living away from their parents the first time. Meeting, peer group and creating friends for life. So going back to that whole experiential concept, kids actually, left for periods of time, but as the states opened up, they quickly left their parents homes and went back.
Even if school wasn't in session, they went back to their properties, to the, to the housing around campus. And then we saw just further strengthening. Post COVID, around these major universities. So occupancies, leasing, rent growth, all hit, record highs, over the last several years.
And we, as you look forward, while we're in a bit of a peak here from a demographic perspective, There's, tremendous long term strength behind, this sector looking ahead the next decade.

Sam Tenenbaum: Can you talk about the capital markets environment as well for student housing?

Travis Prince: Yeah, capital markets has been a little bit of a different story, right? It's been very bifurcated in terms of operational performance versus what we've seen that translate to relative to deal volume and values. Although it's coming back significantly and we anticipate 2025 to be.
A major recovery year from a capital markets perspective because there's a ton of liquidity in the markets But it's it's simply a fact of interest rates moving from a relative zero post covid to where we are today And over the course of 22 and 23 we saw historic interest rate rises You that we hadn't seen in two or three decades.
So obviously that's gonna stall, activity. And we're starting to see those things stabilize and have seen a rebound already from a volume perspective in 2024. And, based on what we're seeing in our pipeline, anticipate, 2025 to probably be twice that.

Sam Tenenbaum: Where do you see the best opportunities in the market today? You guys are obviously tip of the spear. You're talking to the smartest folks in student housing on a regular basis. How do you think about it? How are they thinking about the opportunities that exist in the market? And where do you see that, that playing over the next, couple years here?

Travis Prince: Sure. Yeah, I'll take that. And Adam, please, jump in here where I may be missing something. We've all obviously talked a lot about, these, the Power 4 markets. They get the most attention, the heaviest capital flows, the most product. So obviously there's a lot of opportunity, in those markets, depending on cost to capital, what your investment strategy is.
Where your skill set lies, whether it's, ground up development, which is becoming harder and harder. There's fewer and fewer schools that it makes sense to, build ground up given interest rates and construction costs and rent levels. And within those schools, it makes sense. There's fewer and fewer good sites.
They typically take longer to identify. Longer to get through the entitlement process. So Certainly development remains a great opportunity for those who have those capabilities. And then of course there's the existing stock that, some of which is, in great locations, but is, maybe a decade old in time for a modernization plan.
So come in and, whether it's new flooring or paint an opportunity to provide, some updates to some aging product. And then when you look at the broader subset of the market and what's most affordable, some of the non pedestrian product that still is in relatively great locations and offers a great opportunity, but at a very accessible entry point for most of the enrollment, I think represents a, an incredible opportunity.
So that's, those are all kind of the segments within these major markets that we've been talking about. But. What's been ignored or harder to make deals happen or less capital flows into over the last decade has been some of these secondary and tertiary markets. And there's quite a few out there that have had stable to growing enrollment.
No development pipeline and you know the existing product in that market has performed very well. So we're hearing more and more that there's going to be capital raised around those efforts and we expect to see more liquidity in those markets as we go forward the next five years

Adam Loftin: Yeah, the other one that I would also add, and again, going back to UT Austin and West Campus and the neighborhood surrounding there, there's a lot of generation one student product that was built in the past that is ripe for conversion to conventional. There's in a lot of these markets, not just Austin, but across the country, there's been a lot of demand, and, growing.
populations and within those, those cities and towns and, higher demand for apartment living. And there is also opportunities there for conversion, away from student operations to, to conventional as well that we're like, we're seeing a lot of.

Sam Tenenbaum: I like that. Although, given Austin's supply woes of late, I'm not sure there are a lot of folks itching to convert to conventional multifamily in Austin right now. But, I think the point is certainly valid in other markets, to your point, Adam.

Adam Loftin: Absolutely.

Sam Tenenbaum: Travis, I know you alluded to this earlier, talking about sort of the peak demographics that we're in right now.
I know there's some talk about the quote unquote enrollment cliff. Can you use that and also then talk about where you see the outlook headed for the industry, not just over the next year or two, but, the next five, 10 years?

Travis Prince: Yeah, we certainly don't like enrollment cliff, I think that it's more of a hill in my mind But I'll, Adam's the numbers guy. He's, smarter than I am. I'll kick it to him. But I can just tell you, it's no cliff.

Adam Loftin: yeah. Cliff is definitely a word that the media has latched on to, but isn't an accurate description of the, Of the demographic phenomenon that's driving these forecasts. The truth is that absolutely the spring of 2000, 25, coming up is going to be that peak of 3.9 million high school graduates this year.
But over the medium term, forecasting about a 1%, reduction in graduates, each year. So / it's definitely not a cliff by any means. It's a more of a hill, as Travis said. And there's still some lower peaks ahead and the mid to, early to mid to 2030s as well.
It's definitely not something that. That's just gonna come to a halt all of a sudden, but it is, a demographic trend that is the reality and, that is going to be, driving enrollments, over the, the foreseeable future, that we can see that, that schools are already beginning to prepare for, and it is definitely going to benefit those with the name recognition and, and, for, those nationally based schools to be able to attract, students and compete for those, for those students going forward.
And it's also going to, benefit those schools that are located in states that, do have growing younger populations. And so there are, more than a few markets, And states, whose demographics are going in the opposite direction. So it's definitely, a case by case basis and, something that we're keeping a close eye on.

Travis Prince: And for kids and future, potential, enrollees in, in U. S. universities, it's about ROI, right? If you're graduating with over a hundred thousand in debt and your job prospects aren't great, You're probably gonna reconsider. So that's a lot of the phenomenon we've seen the last decade driving some of these smaller, private liberal arts schools that are very expensive that maybe aren't the brand name Ivies or things of that nature.
And has really pushed a lot to, the major public institutions for value of the education and the experience.

Adam Loftin: But, beyond that, as it applies to the sector specifically, I think that the biggest takeaways, that we have is that, again, our, the largest schools, there's been a trend, towards enrollment at these larger schools that make up the, the more significant student housing markets.
And so the sector itself, is forecasted to have some resiliency, there. It's also. harder to develop, as Travis was mentioning, earlier. And, so supply is going to be constrained. Even though we're peaking right now and there's going to be a slow decline, over the, the medium term, there is, it's still going to be a very significant, number of students that are enrolled in, in universities across the country.
And that is going to support demand. Over that medium term. We're not forecasting significant changes, on a whole sector basis, in terms of demand and occupancies and, and rent rates. And beyond that, and Travis, I'll let you, describe 2025 and what we're seeing coming up for the year ahead.

Travis Prince: I think just to dovetail on your point, there's a lot that can be interpreted in the demographic data, and we certainly don't want to get in the weeds here. But the other consideration when we're looking at these forecasts is we're keeping the percentage of students, high school graduates.
that would ultimately go to college at the lowest percentage that we've seen in the last two decades to make these forecasts going forward. We could still see a phenomenon where kids start to go to school at a higher rate, and at a rate that they've gone historically, which is higher than what we're forecasting going forward, which would then obviously support You know, very continued, very strong enrollments.
And that's what our opinion is. Is this is a, as far ahead as we can see with the demographic data, there's going to be, tremendous demand here. Adam referenced those things, it's harder to build. And then you look at supply demand equilibrium as it sits now, if you consider, and all of these major campuses in general, On campus plus off campus to the total number of undergraduate students, you're still in some cases even under 50 percent, right?
It'd be a long way to go if everybody lived in bed basis housing. You'd have to deliver a lot more to get to full capacity. Thank you.

Sam Tenenbaum: Adam and Travis, thank you again for sharing these insights, and thank you to the audience for listening. To hear more episodes of the Multifamily Minute, please subscribe to our podcast on Spotify, Apple Podcasts, or the podcast app of your choice, and visit CushmanWakefield.
com slash MultifamilyMinute for our complete archive.

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