Fundamentals Highlight Student Housing as Rising New Asset Class

Enrollment at U.S. institutions of higher education has seen tremendous growth over the past two decades and is projected to continue with strong growth for the foreseeable future. Enrollment figures grew by 11% in the 90’s and at a remarkable 37% from 2000 to 2010. By 2020, enrollment is expected to be over 23 million students, representing an increase of 12% this decade.1 Of the 20.6+ million students in school today, only 20% (~4 million) of the students live in on-campus housing, 45% (~9 million) of the students live with their parents or relatives and the remaining 35% (~7 million) of the students are left to look for off-campus housing solutions. Even with only approximately 20% of students living on-campus, colleges and universities cannot currently meet the housing needs of their student body and, as the student enrollment builds over the coming years, the on-campus shortage will intensify. With today’s demands for quality housing coupled with the existing, older inventory, the current supply of on-campus housing owned by the schools is becoming obsolete and requires significant additional capital dollars to meet the the students’ highly sophisticated needs.

Student housing is a relatively new, niche-oriented real estate asset class with tremendous demand-driven growth opportunities and a highly fragmented landscape with few firms having any true market concentration. With such a large, fragmented market, there lies an opportunity to become a market leader with a strategy towards creating intense brand loyalty through exceptional management, well-located assets and creating a full “campus” experience.

There are currently three student housing REITs that are publicly traded: American Campus Communities (NYSE: ACC, IPO in 2004), Education Realty Trust Inc. (NYSE: EDR, IPO in 2005) and Campus Crest Communities (NYSE: CCG, IPO in 2010). In total, these three REITs only own 174,188 beds in the aggregate across 297 properties which only represent approximately 1.5% of the total student housing bed inventory at the 4,500+ four year colleges and universities across the U.S.2 According to Student Housing Business magazine, approximately 93% of the student housing units in the country are owned by independent student housing rental owners (“IROs”).3 The Top 10 largest owners of student housing buildings control approximately 270,000 beds4 (approximately 2.5% of the total number of beds), however, the majority is owned by disparate investors who contract 3rd party management companies, which provides opportunities for industry consolidation and market efficiencies to be recognized.

Over the past 10 to 15 years, the student housing industry has evolved into a mature business increasingly catering to the demands of the expanding student population while capitalizing on a shortage of modern, purpose-built student housing facilities that are desired by today’s student population and parents. The industry consists of assets that are located either on or adjacent to campus or off-campus within a few miles of campus. The on-campus assets are typically owned by the colleges or universities and managed by the school or 3rd party managers. The off-campus assets, which total approximately 7 million beds nationwide, are owned by both private and public investors and tend to be of newer vintage and more luxurious.

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