March 20, 2019
By Greg Gonzalez, Berkadia Director – Student Housing
March brings all the feels of the holiday season to college hoops fans and bracketology enthusiasts across the country. Championship Week helps set the table and Selection Sunday spurs heated dinner debates, but come opening weekend, all that is laid to rest as 68 teams kick off competition for a national title. College basketball has a glorious playoff system. Single game match-ups seeded more by art than science allow for UMBC-type upsets and for hidden talents like Ali Farokmanesh to become household names, yet six consecutive wins almost always puts the best team in the country climbing Werner ladders to bring home their share of the net.
The Student Housing sector is similarly competitive, with a total sales volume of $10.5 billion in 2018, up more than 200% from just 2014. Along the way, there have been Cinderella stories of small markets quick to adopt and accept Purpose-Built Off-Campus Student Housing (POSH) with incredible rent growth and upset stories when robust markets see continued supply mixed with stagnant (or worse, declining) enrollment. So how do those looking to get into the space identify the true contenders for return on investment? After all, not all match-ups are created equal.
At Berkadia, we’re constantly reviewing the stats and watching game tape in order to match the right investors with the right opportunities. Of course, we start from our clients’ goals, but within our sector there are a few key metrics—enrollment growth, new supply and rent growth to name a few—that we consider when evaluating investment opportunities.
In honor of the Big Dance, we tapped our robust research team and channeled our decision-making process to create a student housing investor bracket to determine the top conference in the country. With insight from the team supplemented by data from Axiometrics, we seeded eight conferences against each other. The “Power Five” conferences represented by the SEC, Big 12, Big 10, Pac-12 and ACC received our top seeding. Select mid-major conferences like the American Athletic Conference, Conference USA and the Mountain West Conference had enough universities with purpose-built student housing and enrollment growth to round out our Elite 8.
Our first-round match-up compared 2019 enrollment growth projections. The strongest performer was the American Conference, leading the way with 1.63% forecasted growth in the 2019 enrollment. In a first round upset, they knocked off the SEC, which grew at an impressive 1.34% but not enough to advance. The Big 10, which forecasts the lowest enrollment growth of the first round at 0.88%, was also upset despite being a Power Five conference.
Final 4 match-ups were a battle of new supply, with the conference delivering fewer beds moving on to the championship. The Big 12 and American conference are forecasted to deliver 4,864 beds and beds 3,563 respectively, moving the 8-seeded American conference into the championship game. The Pac-12 and ACC are both projected to deliver significantly more product, with the Pac-12 delivering 7,477 beds and the ACC 10,769 beds, the most supply of any conference.
The championship matchup featured the Pac-12 going head-to-head with the American conference. For the final category, whichever conference was forecasting the highest rent growth for 2019 would be our winner. (Figure 2) With the seconds ticking down as the last pivot table sorted, we ended in tie. Both conferences are forecasting rent growth of 2.59%. To settle this in overtime we compared total purpose-built beds (both on and off campus) compared to total enrollment. The data here delivered a clear winner, with the Pac-12 housing only 28% of their students in purpose-built housing, compared to American at 34%.
So, the Pac-12 is the champion of our first student housing bracketology, given the upside demonstrated by enrollment growth, rent growth and capacity for additional supply. Though up-ended in overtime, the American Conference was one of the best performers across all categories. The Mountain West Conference, despite being a first-round knock-out, would have been a real contender. (See Figure 3 for data for all the conferences within each category.)
Like there’s no single path to the NCAA finals, there’s no one way to evaluate deals in the student housing sector, but with every new opportunity, in-depth market knowledge and analysis are essential to making the right investments. As we head into the end of the 18/19 school year, pre-leasing for the 19/20 school year and the August delivery pipeline are in full swing. Those who can distinguish the Cinderella stories from the bracket-busters can own the top seed in the marketplace. Let the fun begin!
For comments, questions or concerns, please contact Dennis Kaiser