Niche properties

Opportunities in Urban Student Housing

The past several years have seen a renewed and growing interest in urban living. As a notable part of this trend, many college students now seek out higher education in some of America 's largest cities. In the past students may have viewed big-city colleges and universities as gritty commuter institutions, but modern urban students expect the best of both worlds -- they want the social and cultural opportunities of a major city with the community and camaraderie of a traditional, on-campus experience.

Consider, for example, the primary campuses and urban satellites of traditional Midwest flagship state institutions. Until 10 years ago, students sought to attend the University of Wisconsin in Madison or the University of Illinois in Champaign-Urbana. Their urban campuses, almost exclusively, served a separate commuter population. Today, high-achieving students are as likely to prefer the University of Wisconsin in Milwaukee or the University of Illinois in Chicago , recognizing that the prestige of their degree can be enhanced with four or more years of living in a vibrant urban area, full of unique opportunities. This major shift has many of the same characteristics of the overall redevelopment trends in these same cities, where demand for urban residential housing also has increased.

Even more remarkable, a majority of students living on urban campuses come from the surrounding suburbs. These students and their families view student housing not as a commodity or merely shelter, but rather as an important lifestyle element of the overall college or university experience. This demographic shift is central to understanding the challenges at urban colleges and universities, where students and their families demand high-quality accommodations, despite the high land and construction costs institutions face.

More Than Shelter

A few years ago, several experts predicted that the availability of online or distance-learning classes would create a significant economic drain on traditional college campuses. Since brick-and-mortar institutions face the high costs of building and operating expensive facilities, students were expected to respond positively to the efficiency and lower cost of alternative systems. Instead of choosing the less-expensive alternative, many students still pick the traditional college experience. Enrollment at universities is on the rise in most areas nationwide, according to the National Multi Housing Council. Between 2000 and 2003, only seven out of 64 universities in a NMHC had negative enrollment trends. These students seek a specific lifestyle –- be it a small, idyllic liberal-arts campus or a major city. The fact that higher education costs have risen dramatically enhances this desire. With so much sacrifice made to fund an education, students and their families demand the very best possible experience.

In response, urban institutions throughout the country are often doubling, tripling, and even quadrupling their housing stock. They are also building the ancillary and support facilities required on a major residential campus including student unions, recreation centers, and other amenities. These institutions recognize that not only do such spaces impact campus life positively, they also impact student recruitment. Schools that have built attractive new facilities or draw on private-sector investment to do so have an advantage relative to their competition.

Opportunities for the Private Sector

Significant expansions can exhaust a non-profit institution's limited resources. The financing and building of residential and other lifestyle spaces often are seen as supplementary to core educational missions. This situation creates opportunities for the private sector.

In addition to demand for frequently privatized, on-campus housing, the off-campus markets also must absorb an ever–increasing number of student residents. Students who live on campus for a year or two are likely to seek nearby rental accommodations for their later undergraduate years.

For example, consider an institution of 12,000 full-time undergraduate students that expects half of its students to live on campus at some point during their studies and has capacity for 3,000 students to live on campus. It is likely that approximately 50 percent of that demand will be comprised of first-year students with the remaining demand spread across all other classes. Every year, if 1,500 new first-year students live on campus and only 500 remain for their second year, the market must absorb 1,000 students. The average student will require four-and-a-half to five years to complete undergraduate studies, so eventually a new off-campus demand of 3,000 to 4,000 students is created. And, this number excludes those who never lived on campus. If a typical urban apartment can house three students, the presence of a mid-size urban institution of 12,000 students thus creates demand for 1,000 to 1,500 off-campus multifamily units. Many of these students desire high-end accommodations with some even purchasing or renting luxury condominiums from private owners.

Much of the new student housing built over the past decade has been neither completely on- or off-campus, but rather uses varying levels of private-sector partnerships to tap into resources and mitigate risk. Those arrangements could span from as little as third-party construction management to institutions master-leasing housing from private owners or completely outsourcing housing operations to specialized providers. In the past 15 years, more than 200 U.S. transactions have been completed in which a non-profit educational institution has hired a developer to build new student housing. With demand continuing to increase and more institutions recognizing the benefits of such partnerships, many similar developments can be expected in the next decade.

Unique Customers

Unlike a typical multifamily development in which the customer is the tenant or resident, student housing has three customers: the student resident, the parents or family of the student, and the institution itself.

Generally, the student residents will trade space for privacy, so bedrooms are usually single-occupancy, and quite small. Students are also more open to sharing kitchens, bathrooms, and living rooms than they are to sharing bedrooms, so a typical modern undergraduate apartment design has four small bedrooms, two bathrooms, and a common kitchen and living area, totaling perhaps 1,000 to 1,200 square feet and accommodating four students.

Some students desire a quiet place to study and sleep, while others prefer a more social environment. A well-designed and well-operated building can accommodate both.

Although most student residents are over 18 years of age, their families quite often are heavily involved in the selection of and payment for housing accommodations. What families find appealing is an environment exclusively or primarily for students, adequate security, leases that are individual rather than joint-and-several among roommates, on-site management with a background in student housing, dedicated quiet study space, and a safe, convenient walk or commute to campus. While students generally seek more independence than they would experience on-campus as first- or second-year students, many families believe that the ideal private student-housing community is a stepping stone between on- and off-campus living.

The final customer is the institution itself. This is true even if there is no formal relationship between the institution and a particular property because students, their families, and even the surrounding community will all look to the educational institution –- the largest and most permanent aspect of the neighborhood –- to step in if things go wrong. If an institution recognizes that it has housing demand that cannot be satisfied internally, the ideal concession is for the private sector to offer high-quality alternatives. Even if the institution cannot or will not establish formal connections or a financial relationship, even a loose endorsement of a property can be extremely beneficial. An astute developer or property owner will strive not only to be a good neighbor to the educational institution, but will also offer a product that is a natural complement to existing on-campus stock.

Robert D. Bronstein

Robert D. Bronstein is president of The Scion Group LLC, a Chicago-based real estate services provider to not-for-profit institutions and their private-sector partners. He can be reached at (312)704-5100 or info@thesciongroup.com

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