- February 10, 2022
- Industry, Insights
Greg Bronson, Saxum’s Director of Investments | Student Housing, spoke as a panelist at IMN's 2nd annual Student Housing 360 Conference of 2022.
The conference focused on the state of the student housing market through the ongoing pandemic, and provided ample insight on this sector of the real estate industry. While discussions covered the uncertainties in the market, including heightened expectations around environmental, social, and governance factors, there is optimism for a return to a pre-pandemic student housing market. Greg shared his expertise on not only on these topics, but also included insights into his views on institutional markets and Saxum’s investment thesis on the current market.
Q: Who are the new entrants to the market and what are they looking for?
Greg: Recently, large private equity firms have announced significant portfolio transactions in the sector that demonstrate the continued institutional trend of the student housing sector. A number of large family office groups and multifamily groups have also made investments in the sector. As yields have compressed in other property sectors, student offers both absolute return in the form of yield and risk-adjusted return with the strong performance of the property sector over the last few years during COVID-19. Occupancy, collections, and rent growth have all remained strong despite headwinds.
Institutions are very thorough with their underwriting of property investments and sponsors. On the property side, they turn over every stone related to the property, market, business plan, deal dynamics, and so forth. On the sponsorship side, that is a big focus. They need to know who the sponsor is, what their track record is, what their experience in student housing has been, and what references they can provide. Everything starts with a deal, but like all real estate joint ventures, relationships are critical. Institutions view students as higher risk and underwrite their sponsors more carefully, especially for development or value-add investments.
Q: How has institutional appetite for student housing properties influenced the market?
Greg: Power 5 markets have continued to draw the most investment capital with a primary focus on core strategies. The flight to safety is reflective of student housing possessing inherent risks associated with the property type and some reticence from investors to take on additional risk. So, Power 5 cap rates have continued to tighten while non-Power 5 cap rates have seen less relative movement.
Our value-add student housing strategy focuses on universities with enrollment of over 15,000 students in growth markets, primarily in the Sunbelt. We primarily focus on Division 1, non-Power 5 schools with a strong investment thesis. We underwrite the universities using careful underwriting criteria and are finding greater yield with these opportunities that don’t fit the institutional investment thesis for student housing.
Q: When discussing student housing, how do you discuss the investment thesis with institutional investors?
Greg: Some investors hear student housing and recall the movie “Animal House” and have reservations. Those concerns are easily addressed after showing pictures of properties and walking through property financials. The institutional quality of property financials speaks very clearly.
Despite the headline risks associated with COVID-19 over the last two years, the student housing industry has demonstrated ongoing resiliency. Occupancies across the sector as of February 2022 are above the same time in 2021 and 2020 with over 2.8% rent growth. 2022 and 2023 preleasing is tracking very well – already over 6% ahead of last year. This shows the continued demand for student housing demand with limited supply.
Answers from Greg Bronson, Director of Investments | Student Housing