Real Estate Journal — Owners, Developers & Managers — June 23 - July 13, 2017 — 5B


M id A tlantic

O wners , D evelopers & M anagers By Jessica Zolotorofe, Ansell Grimm & Aaron, PC The current state of Student Housing


hree or four students packed into a dorm room that was already

to purchase in a location that their children likely won’t re- main after graduation. And so, private student hous- ing became the solution. In addition to development of complexes off-campus, some colleges, like Drexel University in Pennsylvania, have such significant housing shortages that they contract with private developers to build and main- tain housing actually situated on their campuses. High Demand, Lower Risk. While nothing is truly “re- cession proof”, student hous- ing may be as close as we

get. Conventional apartment pricing fell about 20% during the recent recession, but price per bed for student housing didn’t follow suit. And post- recession, the market continues to boom. The average cap rate for student housing projects last year was between 5.87 and 6.2 across the U.S., down slightly from 2015. While still about 10-20 basis points behind conventional multifamily proj- ects, now is the time to invest, while yield advantage is strong for student housing projects nationwide. Financability.

Joint and several liability from tenants, in addition to personal guaranties from their parents make not only land- lords happy, but their lenders too. Since 2010, Freddie Mac has originated over $9 billion in loans for student housing development. Federal lending institutions, REITs, and many CMBS lenders offer competi- tive loan terms; non-recourse, low interest rates, and with favorable debt service coverage ratios and loan to value criteria. However, lenders often re- quire, as conditions to making loans to developers, that (i) at

least 80% of all leases in the community are guaranteed by parents, or documentation provided that students can af- ford to pay the rent each month themselves; (ii) the develop- ments house at least 80% un- dergraduate students, and (iii) are within two miles of campus or along a university-owned transportation line. Amenities and Offerings. In order to maximize the success of a project, certain amenities and offerings make student housing particularly attractive to college students continued on page 24B

cramped for the two stu- dents it was o r i g i n a l l y intended to house; living in makeshift bedrooms in what should be the stu- dent lounge;

Jessica Zolotorofe

or worse, becoming a perma- nent resident at a mediocre- at-best hotel or motel on a major highway, miles from campus. This is the current state of student housing at a significant number of univer- sities throughout the U.S., and even of those in less dire situations, very few campuses have enough housing for all students. Not enough housing to go around. The US Department of Edu- cation projects enrollment in U.S. colleges will increase from the 20.5 million students enrolled last year, and colleges are already struggling to meet the demand. Rutgers, the largest uni- versity in New Jersey, has an annual housing lottery for students to live on campus. The University of Virginia, a mid- size university, has a similar issue, housing less than 40% of its student population. In the early and mid-2000s, Montclair State had only enough housing for less than ¼ of their enrolled students. With tight budgets, colleges place student housing low on their list of priorities. Even at those few schools that do have adequate housing options, dorms are often outdated and undesirable, some with cement block walls, no air condition- ing, or just one bathroom for multiple floors. Single family homes for rent nearby tend to have absentee landlords, many old and run-down, some even unsafe with uncured code violations and lack of regular maintenance; no comparison to new off-campus student housing developments, where available. Even with the housing shortage problem, the ma- jority of college students are experiencing life away from home for the first time, and are not in a position to pur- chase property near campus. Nor are their parents inclined

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