Comments (20)

Oct 1, 2017

I can't share anything as that would be a gross violation of confidentiality but I've been very active in the student housing space (closed 6 transactions in the last 2 years) so happy to answer any questions you have.

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Oct 1, 2017

Thanks. From a modeling standpoint how similar or different are your models from a basic multifamily model either acquisition or development compared to a student housing model. Also any tips or resources that you can recommend on getting up to speed with the student housing industry would be great. Right now I read all the major news from sites like Student Housing Business and others but I'm looking to learn more of the financial structures that these deals incorporate. Do you guys do a lot of JV structures, ground leases, etc. and what kind of terms are you guys getting on your debt.

Oct 1, 2017

Interested in this as well; from the little that I have looked at so far, I've gleaned that evaluating deals on a per bed basis is the norm (vs. per unit with traditional MFH) in terms of cost to build, rents, and opex.

On the development front, delivering 2+ months before first day of school is critical--have you found there is an ideal window for this (is 2 months accurate or do you just need to be move-in ready before school starts)? Also, how do you look at OpEx? Do you up the capital reserves per unit from ~$250 to $300+ given the wear and tear nature of student housing or are standard multifamily assumptions viable here too? We traditionally peg operating margin to be ~60% of gross revenue (40% OpEx load), and I am interested in whether you up this OpEx load for student housing as compared to traditional multifamily?

Would love to hear any other unique facts/takeaways you've gathered from experience. Lease up assumptions vs. reality is an area I'm most interested in.

Oct 1, 2017

From what I've seen you actually want your delivery date 4 months or so before the start of school. You want existing students to be able to get a look at it before they make their housing decisions.

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Feb 24, 2018

Asset Manager here with +10 properties in student housing.

So some general guidelines and things to keep in mind for when you model student housing.

Leases are typically year long with minimal turnover upon lease expirations. As aforementioned, expect to dump a good amount in your CapEx as students are the worst tenants to have (drunk college students break everything and anything). Also as aforementioned, student housing is typically measured by /bed vs /unit as unit mixes for student housing is structured in this matter. This is why student housing is viewed as a desirable asset class in terms of operating c/f as these properties will pack as many beds into a unit and charge by /bed. However, there's a lot of downside as students are idiots and kill people (two shootings in one of our assets in one year), burn shit (a hookah coal almost burned down a whole unit), and F school (students moving to SFR)

Feb 15, 2018

instead of getting into debt, why not save on loans by studying in Europe, where education is much cheeper or even free. Here is an interesting article on how Europe offers the best deal - even for international students kleverscapes/2016/09/27/why-european-universities-offer-the-best-deal/ (add .com after kleverscapes as I am not allowed to post links)

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Best Response
Oct 2, 2017

Ok quite a few things to answer here:

Models:
I've not done that much in the multifamily space so I lack that reference point. The models I've seen other advisers use and that I've built myself have been pretty standard project finance models. They're always integrated 3 statement models, no simple DCFs here. Typical things they'd include are: relatively simple operational side (it's just not a very complex operation), lifecycle costs, debt and lifecycle reserve accounts, the usual debt macros you'd see in project finance.

Reading material
Market reports from the large estate agents such as JLL, Knight Frank, Savills, CBRE.

Structures
I've seen these assets always within SPVs, sometimes the University may be given a small equity stake.

Ground leases
If it's a university linked deal, the university would own the land but no rent would be payable for it. If it's a private asset, then usually the ProjectCo would own the land. Basically I've not seen ground leases to be a material part of the deal (though on other projects it might be, this is just my experience).

Debt terms
The structure is usually very highly levered, I've seen up to 90% gearing on university linked deals. These can have maturities of up to 50 years and up to 100% inflation linking. Direct let assets are a bit more conservative with slightly shorter maturities (up to 40 years) and with less investor appetite to go heavy on inflation linked debt. There are also some lenders that can do super aggressive sale and leaseback funding options. Shorter term bullet repayment debt is also available but gearing is much lower.

Deal evaluation
Yes looking at things on a per bed basis is the norm. You'll usually have opex and lifecycle looked at based on that. Rents are looked at compared to other similar rooms in the area.

Opex
This is not sometging I've gone into much detail on. Often times the operating company will simply give a cost number per bed/charge for the year and that is it. Plus there may be a management fee (% of rent less opex) payable to the operator, and of course your typical (albeit small) SPV overheads. Margins of multifamily I'm not that familiar with as most of my work has been exclusively student housing. I'd say about 65% is the average margin I've seen off the top of my head.

Lease up
If it's a university linked deal, this effectively doesn't exist as it'll be fully occupied from day 1. I've not done private construction assets so afraid I can't comment more on this area.

Student housing is a very interesting asset class. However after a while executing these deals becomes a bit cut and paste as it's become quite standardised.

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Feb 15, 2018

Well, that's interesting!

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Feb 15, 2018

I'm about 50/50 student housing to market rate. Some random differences that come to mind:

  • Per bed vs. per unit. The trend in student housing is to rent per bed as well, not per unit like it was "back in my day" aka 6 whole years ago
  • Lease up is critical. If you don't fill the building, you can't recover. We don't deliver 2-4 months early though. Some markets lease completely for Fall 2018 before Thanksgiving 2017 even happens. You're not going to deliver 10 months early... If your team is good, you can sell the dream.
  • Plan on providing for more than you typically would. If you're not walking distance to campus, you might want to underwrite a shuttle service. You're probably going to be providing furniture. You're probably going to be covering some utilities.
  • At the same time, you don't need to trick out your kitchens and baths the same way you would with market rate product. As long as you're better than the dorms and your competive set, you're solid.

Lots of more nuance than that, so feel free to ask, but the delivering early thing cracks me up. ****

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Feb 16, 2018

The bed/unit distiction is key for student assets, but the bed/bedroom distiction also comes up from time to time.

Rents are by the bed, but you may see comps priced on a bed or bedroom basis, depending on how double occupancy changes from year to year.

Edit:
I agree, definite lol at early delivery, everyone with a competent team will have a leasing office on campus for new product full of glossy brochures and marketing collateral before completion.

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Feb 27, 2018

In my experience (both as a student, and as a capital markets advisor to an institutional student housing developer/operator), there is no "delivering early" the rooms are just barely ready for move in (or not and you have to pay for them to live in hotels), and the amenities (especially the pool) that looked so great in the leasing package, take about another semester to be fully ready.

CRE is spot on with the lease up. If you have a competitive project in a good college market, lease up won't be an issue.

Feb 26, 2018

On delivering early:

http://www.wbir.com/article/news/local/the-standar...
I think I visited Boone, NC in October/November and they still hadn't delivered. Someone told me they had a friend that was supposed to live there and she was still being forced to pay rent. I don't believe that part, as I'm pretty every lease requires you to deliver a premise, but regardless students were in bad shape with the late deliveries.

Feb 27, 2018

Do you think that's just growing pains for Landmark? I know they have a programmatic JV with ADIA, and other big partners I'm sure. Sometimes when SH developers start finally executing their pipeline they spread themselves too thin. The same thing happened to CA SL.

Feb 27, 2018
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