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Coming from someone who has underwritten both student and conventional multifamily, the biggest differences are the leasing velocity upon completion and when rent increases occur. I assume a pretty constant vacancy upon completion rather than a 20 unit/month lease up like I would in a conventional multifamily deal. Rent increases only occur once annually at the start of the school year in my model.
Also important to note, student housing is typically viewed in terms of "beds", rather than units. Bed turnover should be assumed at 100% annually.
Thanks for adding that CRErector, those are very important inputs.
do most firms model out the bed occupancies going forward or just assume an annual general vacancy?
I would also add a few things. For student you should really make sure to beef up replacement reserves below the line as the wear and tear on the units tend to be more than what you would see with a traditional deal. Also in some student deals landlords are providing TVs, furniture, etc. so you really need to wrap your head around what you are responsible for. In addition when leasing student housing you only get two bites at the apple. If you aren't all full by the time fall semester starts, you might pick up some occupancy at second semester, but it isn't like people are coming in off the street to start classes in October. So model in the majority of the marketing dollars in the spring so you can get students signed up for the following fall. Also depending on school size the campus may die out over summer, so you need to figure out if you are doing 12 month leases, 11.5 month leases, 9 month leases, or 4.5 month leases. Also need to find out if you have parental guarantees on leases or if it is just the student. If no parental guarantees I'd make sure you have a healthy bad debt number.
You also need to be cognizant about location relative to campus, is there a shuttle, is the school adding dorms on campus, what is the school's policy for letting students live off campus, etc.
Sorry this was a bit scattered.
How do you guys look at construction and supply pipelines relative to student housing? Universities can just issue a $250MM bond and put up a huge 3,000 bed student housing project which blows off competing projects which planned to lease up at the same time. It's going on with my UG school.
What about mitigating construction delays (don't want to miss lease up for the new school year)?
Tax-exempt financing is always an option for Universities - but many do not want that on their balance sheets for many reasons. As far as construction supply pipeline - I imagine most people would be in close comunication with the University, ensuring there are no plans for development in the near future. I've only worked on projects that have involved ground leases with the university - if there was not a guarentee for occupancy there was at least a clause in the ground lease stating the University would not enter into similar agreements or development projects for X number of years.
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