May 22, 2017
In 2016, more than $10-billion of capital flowed into the acquisition of investment grade student housing assets, the single largest transactional year in student housing history, according to ARA Newmark’s 2016 Annual Student Housing Market Overview. The sector, which benefits from low interest rates and increased investor demand for purpose-built student housing, marked a record-setting year for continued cap rate compression. Cross-border foreign capital accounted for approximately $2 billion of investment grade student housing acquisitions in 2016, more than the past decade combined.
ARA Newmark’s Ryan Lang, executive managing director of ARA’s Student Housing Group in Austin, TX, shared insights about the results of the report in Connect Media’s latest Q&A. ARA is one of the only companies to report on national student housing trends.
Q: Did anything about the 2016 report surprise you? If so, what was it?
A: There were plenty of significant developments in 2016 that occurred, namely sheer transaction volume and the amount of new capital that entered the space. We’ve transacted with an abundance of foreign capital sources from China, Russia, Israel, and the U.K over the last 12 months. While this wasn’t entirely surprising, it was the first time we’ve seen foreign capital play a meaningful role in driving student housing transaction volume.
Q: You mentioned that buyer timing is changing somewhat, with student housing becoming a year-round acquisition, as opposed to fall, following lease-up and move-in periods. Why has this been happening?
A: As the space has become more institutionalized, seasoned operators have focused heavily on pre-leasing and trending rates where you can earlier define where the upcoming academic year will materialize. This, combined with a tremendous amount of capital looking to place equity prior to the 3rd and 4th quarters, have led to more transactions in Q1 and Q2. We expect this trend to continue and, as always, “rollover deals” from the 4th quarter typically contribute to strong Q1 volume.
Q: Will we see the same amount of interest in student housing in 2017? Why? What are some of the drivers behind investor interest in this student type?
A: 2016 was a record year for the student housing space, and while I think it’s unlikely 2017 transaction volume matches 2016, there will still be a tremendous amount of activity. Our team has already closed over $250-million in 2017 and the amount of new equity looking to gain scale in the space is substantial. The proven recession resiliency of the sector has both foreign and domestic capital ensuring their portfolios are properly diversified into a space that has strong supply/demand fundamentals, and is no longer regarded as “niche” amongst institutional investors.