Capstone, Revisited

by Katie Sloan

Capstone, Revisited
Split into four separate entities, the industry is hearing a lot more of the Capstone name.

Campus Town at The College of
New Jersey is a current project
of COCM.
As one of the founding companies of the student housing industry, the name Capstone rings familiar to many in the industry. But the Capstone you know today is different than it was just two years ago — and you are more than likely hearing the name more often and in different circles recently. That is because when Capstone’s founder, Mike Mouron, decided to head toward retirement and enact his succession plan in 2012, he divided Capstone into four separate entities.

While the division of Capstone was, in part, due to Mouron’s retirement from day-to-day operations, the overriding reason was that the company had grown into a complex machine, doing everything from the development of off-campus cottages to on-campus public-private development. While the new companies are related in name — each carries the Capstone moniker as part of its name — they are technically unrelated as business entities. They share some common traits, but act completely independent of one another. Some are still located in the old Capstone headquarters, while others are headquartered nearby.

Student Housing Business visited with leaders of the new Capstone Companies recently to see what they do and how, if at all, they inter-relate with one another.

Capstone On-Campus Management
Capstone On-Campus Management is focused on the management of on-campus properties. The company does not develop; it steps into operating properties, usually ones that a university feels that it can no longer effectively manage. Led by President Doug Brown, the company specializes in non-profit owned student housing. The majority of the company’s employees has on-campus housing experience. It is growing its business by partnering with developers as the management arm of the team in public-private partnerships, or in RFPs with universities. About half of the company’s portfolio has been taking over projects that weren’t developed by a Capstone entity. The company has also taken over entire campus operations, as it did at Florida Atlantic University.

“One of our real growth avenues is expanding our services after we are already on-campus with a single project,” says Brown. “We understand the enrollment management side and the financial aid side. We understand how meal plans affect living on campus, as well as parking and other facets that are part of the on-campus living experience. When we work with a developer, we can steer them in directions that are more favorable — such as unit type, sizing, etc. — so they don’t make mistakes.”

The company has just over 23,000 beds under management at 24 campuses, making it the largest on-campus third-party manager. As a management company, it has been known for many innovations in on-campus management, including the concept of shared governance, where Capstone may manage housing, but the university still handles such duties as residence life.

“We have the opportunity to see housing from many, many different campus perspectives,” says Brown. “Because we have people who are so experienced, we can plug into the model that best suits the campus.”

One of Capstone On-Campus’s strengths is the ability to manage occupancy of residence halls. That drives revenue, recruiting and retention for the halls. The company’s scale allows us to effectively manage facilities in ways that a single campus cannot do by itself.

For campuses unsure of what the future holds, Capstone On-Campus Management offers its Fresh Eyes program. The program entails the company spending three days on-campus and meeting with all stakeholders in prospective projects. Afterward, it creates a long-term solution for the project, which may or may not include outsourcing management or building.

“We look inside and let the chips fall where they may,” says Brown. “By the end of the third day, we do a presentation for the stakeholders that has tangible recommendations on change.”

Capstone Development Partners
Capstone Development Partners (CDP) develops on- and near-campus properties in conjunctionCapstone Development Partners
has developed The Cadence
in Tucson, Ariz.
with universities and foundations. For more than 18 years, CDP has been working, in various degrees of partnership, with universities. The company works closely, though not exclusively, with Capstone On-Campus Management. The company also works closely with universities and foundations to build student housing projects in public-private partnerships.

“We develop projects that benefit the university,” says Jeff Jones, principal. “In many cases, universities have land, a master plan that includes new housing, or they have made the decision to move forward with new on-campus housing developments through a PPP. In other cases, universities aren’t blessed with an abundance of land, or don’t have the initiative or resources to move forward with an on-campus RFP, but they still have a housing need.”

In the second case, CDP often identifies opportunities for a university, and can vary on its level of involvement with the university. If not on-campus through a PPP, the company prefers to build projects that are within walking distance to campus.

“When working with universities, we like to cut the pattern to fit the cloth,” says Jones. “We don’t have a cookie-cutter solution that we try to apply in every case. We try to understand the university’s needs and goals, as well as their limitations and expectations, and customize a housing solution to fit.”

CDP’s experience leads it to a lot of work. From 1990-1999, Capstone developed 19 off-campus projects for its own account. It learned a lot from that time about how to build and manage for college students.

“When we started working with universities, it was in response to universities coming to us who saw what we were doing off-campus and wanted us to bring that on-campus,” says Jones. “We have helped many colleges modernize and update their housing inventory. Over those 23 years, we have garnered a lot of experience with on-campus housing.”

Capstone Development recently opened two projects in Fall 2013. In Fort Collins, Colo., the company opened The Summit near Colorado State University. In Tucson, Ariz., the company opened The Cadence, a student housing project that was a partnership between Capstone, the University of Arizona and the city of Tucson. In its future pipeline, Capstone Development is working on a project with the Seminole Boosters and Florida State University that is a student athletic housing development in Tallahassee. Another project, The Cardinal, is near the University of Arkansas in Fayetteville. More recently, Capstone Development Partners was selected as the developer for a multi-phase on-campus project for the University of North Alabama in Florence, Ala. The company also has projects in various phases of pre-development at San Diego State University, Seton Hall Law School and in the towns of Burlington, Vt., and Bowling Green, Ohio.

Capstone Collegiate Communities
Capstone Collegiate Communities is the future of the foundation of the original Capstone Development. This company — C3 as its known internally — is made up of three smaller entities: Capstone Collegiate Communities LLC, which acts as the developer; Cottage Builders, the contractor; and Capstone Properties LLC, the management arm. C3 focuses solely on off-campus developments. The company has been active since the split; it has an incredibly strong development pipeline. In fall 2013, the company delivered four new projects with Kayne Anderson, one each in Boone, N.C., East Lansing, Mich., Tuscaloosa, Ala., and Eugene, Ore. In 2014, the company will deliver projects in Albuquerque, N.M., San Marcos, Texas, Colorado Springs, Colo., another project in East Lansing, Mich., and second phases in Tuscaloosa, Ala., and East Lansing, Mich. The company is also serving as a third-party developer for a project that will deliver in 2014 in College Station, Texas.

Capstone Collegiate Communities
developed The Lodges of East Lansing
with Kayne Anderson.
C3 has three product types that it focuses on: cottages, lodges and lofts. Lodges are similar to cottages, except larger. Capstone Collegiate often combines cottages with lodges in some projects. Lofts are more urban, and built in denser markets where land is at a premium and structured parking is a must, but where the company does not want to sacrifice amenities. One of the company’s earlier projects, The Cottages of Baton Rouge near Louisiana State University, now owned by American Campus Communities, is an SHB Innovator Award winner in design.

Since the spinoff, Capstone Collegiate has been selling projects as soon as they are complete to raise equity for its next projects. Capstone Collegiate has had success by building quality products and selling them to buyers like Kayne Anderson and American Campus Communities.

“We are trying to create a base, so we’ve been acting as more of a merchant developer,” says Principal Rob Howland. “That strategy may change as we develop more.”

Capstone Collegiate has an exclusive relationship with an architect for its projects, which Howland says allows the properties to be unique from other cottage products. The company goes through painstaking efforts to make sure its properties are perfect before they leave the drawing board. Its latest project in College Station, for instance, went through eight site plans before it was exactly the way the company wanted it.

“We have a design and development team that does an amazing job,” says Principal John Vawter. “Couple that with our strong management company and that is why we succeed with our properties.”

To ensure separation with Capstone Real Estate Investments (see below), the companies have three-year non-compete agreements with each other. Capstone Collegiate cannot perform acquisitions and renovations, while Capstone Real Estate Investments cannot do ground-up development.

Capstone Real Estate Investments
Formed in January 2012, Capstone Real Estate Investments (CREI) focuses on the acquisition, renovation and repositioning of well located student housing properties near major universities. CREI is where Mike Mouron, and his three sons, spend most of their time these days. The company also has its own management division, which currently manages 12 properties. The company is opportunistic, buying properties of varying age and size, and is targeting acquiring four to six properties per year.

“Typically, our properties are either functionally, physically or operationally underperforming when we acquire them,” says Anderson Neighbors, executive vice president and chief operating officer of CREI. “The properties need some form of capital improvement, or they have not been professionally managed by a student housing operator in the past.”

The company generally looks for properties at universities that qualify for financing under FannieCapstone Real Estate Investments
owns University Village Apartments
in Carbondale, Ill.
Mae and Freddie Mac programs. CREI is internally funded, but it does occasionally employ mezzanine debt and traditional bank financing on properties. Because the company is looking for older properties, it is seeking opportunities for turnarounds. Capstone has acquired properties that were built as long ago as the 1930s and renovated them, and it has acquired properties that were built in the 1990s that needed transformation. The company prefers to hold and operate the property after it finishes the turnaround.

“We’ve made improvements as simple as new flooring, countertops, cabinets, and appliances but we often execute a more extensive renovation plan that includes adding washers, dryers and bathrooms, expanding the living space of units, as well as the creation or enhancement of amenities” says Neighbors. “We don’t look for a certain type of project; we look for projects that we can improve. We have in-house management capabilities that enable us to operate our properties efficiently.”

Today, CREI owns and operates properties in markets like Chapel Hill, N.C., Carbondale, Ill., Kent, Ohio, Tallahassee, Fla, and Lubbock, Texas. Long-time company principals all say ‘the split’ — as they refer to it — has gone well. “We have a seasoned group of people who have been together for a very long time,” says Jones. “Even though we are now operating in four relatively independent spheres, it is a group who worked together for a long time. We’re still relying on each other for feedback, if nothing else.” While Mouron is removed from day-to-day operations, his presence is still felt around the offices, and his touch is still on many new projects. His many loyal employees still seek his counsel — Vawter, who worked for Mouron for 27 years, still has lunch with him monthly to review C3’s projects.

“We want everyone to be successful in their own niche,” says Vawter. “That is unique when you take what was a large company and break it into four separate companies and see no hard feelings. It’s a tribute to Mike and the way he did that.”

— Randall Shearin

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