Article

Investors turn to student housing as in-person learning returns

Returning confidence and a hunt for yield is pushing deal volumes higher

November 11, 2021

The return of students to in-person learning at colleges and universities this fall is piquing investor demand for student housing, both from those who typically invest in the sector as well as new entrants.

In the first half of the year, student housing deal volume hit US$2.5 billion, up from $1.7 billion in the first half of 2020 and closing on the $3 billion in deals in the first half of 2019, according to JLL. In the U.K., over £1.3 billion (US$1.8 billion) of investment took place in the first quarter alone, compared to £250 million for the same period last year.

Students returning to campus is part of the draw. When lockdowns first hit, investors were concerned that student housing demand would plummet due to remote learning. But rent collections remained high even at schools that went mostly remote, as many students decided to live in student housing while taking their classes online.

“With how compressed multi-housing cap rates have become, investors are focusing on yield,” says Teddy Leatherman, Senior Director, JLL Capital Markets, National Student Housing team. “Right now, we are seeing more multi-housing investors looking to buy into the student housing market.”

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Capital flows

Last year, when interest in the U.S. student housing market from foreign and institutional investors slowed, private capital took the lead in terms of transaction volumes.

However, that trend is again reversing, with foreign and institutional investors returning in force, says Stewart Hayes, Senior Director, JLL Capital Markets. In August 2021, for example, Blackstone Real Estate Income Trust agreed to pay US$784 million for a majority stake in a portfolio of eight student housing properties with 5,416 beds.

Investment firms new to the student housing sector are also becoming more present in bidding processes, he says.

“Some of these new entrants are conventional multi-housing investors and some are experienced commercial real estate investors who have historically focused on other product types but, because of how resilient student housing has proven to be historically, see this as an opportunity to invest,” says Hayes. “In some of our recent assignments, new entrants have totaled up to half of bidders.”

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Capital is also abundant for financing student housing developments. Notable recent transactions include Fountain Residential Partners securing joint-venture equity for the development of Dockside Clemson at Clemson University in South Carolina.

Greystar and Star America obtained two construction loans for student housing developments – Union on Broadway at University of Oregon and Lakeview at University of Washington.

“The financing markets are really improving dramatically for student housing, with the debt liquidity in the sector extremely healthy and improving daily,” says Doug Opalka, Managing Director, JLL Capital Markets. “We’ve closed a number of transactions and have many in the works with the agencies, life companies, debt funds, and banks. They’re all at leverage and pricing that is really driving strong returns for the buyers of these assets.”