One student housing developer’s strategy shows why it pays to pick your market carefully. In an interview in Real Estate Journals, Fred Pierce of Pierce Education Properties discusses how the company invests in student housing.
According to Pierce, the student housing market is hot. More than a year of pent-up demand means that students are ready to go back to in-person learning. However, Pierce says that not all housing markets are equal.
His company follows a single strategy: does the market host a Power 5 football conference school? If not, the company does not make an investment. College football doesn’t actually have a direct impact on Pierce’s real estate investment decisions. But the designation does reflect schools whose enrollments are consistently strong, even during the pandemic. Strong enrollment does have a controlling interest over the company’s investment decisions.
“Student housing, like any other kind of commercial real estate, is not immune to over-development. What is key is to be at universities where enrollment demand remains very strong and where there are reasonable barriers to entry.
Fred Pierce, on investing in student housing
According to Pierce, the success of a campus housing project depends upon the school’s strong enrollment. Reading between the lines, there is little opportunity for investors at schools where enrollment is in decline.
Don’t be fooled by luxury student housing demand
Luxury student housing is hot right now. You need only to drive through UM’s campus to see how remarkably the landscape has changed in the past decade. Most new construction near campus has been luxury development. That might be a problem, according to the Department of Housing and Urban Development. The construction of new student housing has far outpaced growth in enrollment. And student housing that emerges as the result of a public-private partnership is frequently less affordable for students than housing managed directly by the institution.
The cost of these new units goes beyond their monthly rent, however. Expensive housing (is there any other kind?) creates a familiar divide among students: the haves and the have-nots. With an overabundance of new, luxury student units, the pressure on local housing providers has intensified. While some students migrate to the more expensive housing options, many run in the opposite direction. This puts demand pressure on the available, lower-cost housing stock. When demand rises, so does the cost of the in-demand item. The increased demand for older, less expensive stock increases its cost and makes it a less attractive alternative. The ultimate consequence is that some students will not be able to afford either option.
The WCC Administration and the Board of Trustees would do well to pay attention to the enrollment red flag. A declining enrollment does not bode well for student housing. It should weigh heavily on the decision to build, especially if WCC will guarantee minimum occupancy. After all, if enrollment is declining, who exactly are we building these buildings for?
For what it’s worth, we could levy the same question at any other construction project on campus.
Photo Credit: Melinda Young Stuart , via Flickr