Report from NMHC Student Housing Conference
Thursday October 04, 2012
Phoenix — Cautious but optimistic was the motto among panelists on the first day at the National Multi Housing Council's Student Housing Conference & Exposition in Phoenix.
Six sessions discussed building on campus, venture capital investments, availability of rollover debt financing and driving NOI, as well as numerous other topics, both financial and even philosophical.
The takeaway is that there have been a few setbacks recently, but not enough to change the positive course of the student housing market, which continues to be defined, for the most part, by increasing college enrollments and a shortage of housing on most campuses, combined with the ongoing trend of universities opting to preserve their debt capacity for educational purposes.
On the challenge side, panelists brought up overbuilding and an occasionally short-sighted plan for the future. Additionally, Rich Martinez, a managing director for Freddie Mac, reported taking their first loss on a student deal. "We still like the space," he said. "But we're going to pull back."
An array of experienced panelists including Bill Bayless, president and CEO of American Campus Communities, Nathan Collier, principal and chairman of the Collier Companies, Donna Preiss, founder and CEO of The Preiss Copany and Ari Rosenblum, president of Woodlark Companies, discussed successes and challenges. Moderator Dorothy Jackman, managing director of Colliers International Student Housing Group, asked the panelists to provide their definition of core asset. Without exception, "close to campus" was top priority. "Shiny and new" was part of that definition as well, though not entirely across the board, with Donna Preiss detailing several profitable turnaround projects.
Collier further parsed the close-to-campus definition, saying it depends on which part of campus a development is near. Adjacent to maintenance facilities, for example, is not the same as across from classrooms. Collier also expressed concern about the efficiency of the market in its definition of core being new and close to campus. Having been in the student housing business since 1972 and never experiencing a 10-year period without a downturn, Collier commented that the newest, highest-amenitized complex starts to show wear and tear after a few years, but the market doesn't go after distressed assets as strongly as it goes after projects fresh out of development.
Bill Bayless said the sector is eyeing the segment of universities that are getting Division I football, including University of Texas, San Antonio, and the University of Central Florida, which Bayless says is growing faster than the University of Florida and Florida State.
"Consistent NOI growth and quality cash flow. This is what we should be watching," he added.
A panel of leaders in public-private partnerships that later took the stage included Dan Bernstein, executive vice president and chief investment officer with Campus Apartments, Tom Trubiana, executive vice president and chief investment officer with EdR and James Wilhelm, executive vice president of ACC. Combined, each of these companies is pursuing billions of dollars in PPPs either in development or under construction on university campuses across the country.
Each discussed the nuances of these complex transactions, including EdR's highly publicized partnership with the University of Kentucky to replace that school's on-campus housing. It continues to be of utmost importance to demonstrate to universities, which often move slowly when it comes to large changes, that real estate companies can and do understand residence life issues, the experts said. The primary function is aiding institutions in understanding the numerous forms a public-private partnership can take.
Remaining sensitive to residence life issues while still ensuring the partnership is a profitable real estate transaction is a delicate balance, all three agreed.
Trubiana discussed how the old model of a university hiring a third party to develop a building and financing it with tax exempt bonds has morphed into universities seeking opportunities to keep debt entirely off their balance sheets. Wilhelm said PPPs are structured around a university's investment grade rating.
The panel closed with its members sharing what they're most passionate about in their jobs and in the student housing industry, particularly where on-campus building is concerned. Bernstein quoted Campus Apartments' founder, saying the company strives toward "building a positive, clean, safe environment where people want to leave their kids."
"The thrill of knowing we're transforming a university for years to come goes far beyond finances," added Trubiana.
Wilhelm concluded, "If students don't have a great experience, we've failed at our job."
The second day of the conference featured six additional sessions, beginning with What We Have Learned, and What Lies Ahead, moderated by Peter Katz, senior vice president of investments with Institutional Property Advisors. Katz led a panel of student housing top executives, including David Adelman, president and chief executive officer of Campus Apartments, Randy Churchey, president and chief executive officer of EdR, and Ted Rollins, co-chairman and chief executive officer of Campus Crest Communities.
Katz led the panel through several topics, including over supply in submarkets, where the majority stated it was not a concern.
"We are not seeing a lot of over supply in our markets," Rollins said. "And when we do, it's a temporary phenomenon."
"From a submarket standpoint, we don't look at it as intensely," Churchey added. "We look in a concentric circle. If we're building one mile from campus, we want to know the land in that same circle because those are our competitors. We make our decisions from there."
Katz also asked if urban infill developments were the next big thing.
Adelmen cited Ann Arbor, Mich., as a city where projects look as though they could be in New York City. "My opinion is you're going to see higher density projects," he said.
The panelists discussed the obstacles of land close to universities, its higher price and its higher barriers to entry.
"It's the price point of infill near universities — only so much can be absorbed by students," Churchey said. "That's what worries me most. That area might get overbuilt in the next few years."
Another panel focusing on construction and development spotlighted the evolution of the amenity package in student housing. Greg Faulkner, president of Humphreys & Partners Architects, led a discussion with Brian Dinerstein, president of The Dinerstein Companies, and Wes Rogers, president and CEO of Landmark Properties about the stylish perks that separate student housing amenities from multi-family.
"The evolution went from nice and big to elegant and flashy and then a little smaller," Dinerstein said. "We're still going down that route. We have a team of high-end designers. We continue to do cutting-edge, funky deals. Students love the product."
Other sessions focused on turning around distressed assets, how Wall Street looks at student housing, controlling utility, property tax and insurance costs and the latest trends in green building design.
— Lynn Peisner