Nimes Capital is a well-known name in the family office investment business. To separate its investments in tech and other sectors from its real estate ventures, the company founded Nimes Real Estate (NRE) in 2013 to focus a team on real estate investments.
“Real estate is such a specialized investment that we wanted to create a team that focused just on our real estate assets, so they weren’t distracted by our other holdings,” says David Nazarian, founder of Nimes Capital and Nimes Real Estate.
Nimes Real Estate entered the student housing sector in 2014 through a purpose-built student housing project called Ballpark North that it acquired in Austin, Texas, close to the University of Texas campus. NRE purchased the property by working directly with the property’s lender who was in the process of foreclosing on the distressed asset. Despite the performance of the asset, NRE saw tremendous upside because the macroeconomic trends in Austin at the time were such that students were being displaced from housing closer to campus as many older, smaller properties were being torn down for newer, high-rise projects with drastically increasing rents. That forced students to seek convenient, affordable alternatives further from campus, which NRE envisioned Ballpark North could be given that it was located on the University’s bus route. Additionally, NRE saw opportunity for further, long-term upside because the property was located in the East Riverside Corridor, an area targeted by the city for redevelopment. With targeted capital investment, new property management, and aggressive asset management, NRE turned the 768-bed project into an attractive, affordable alternative for students that generated significant operating cash flow with redevelopment upside.
“In hindsight, it was a rare opportunity for us in that every single aspect of our business plan for value creation came true and sooner than we expected,” says Randy Winograd, president of NRE.
NRE expanded its student housing portfolio in the area by acquiring three adjacent purpose-built student housing properties from a single owner in an off-market transaction. That added an additional 2,284 beds. All told, NRE owned more than 3,000 beds in the University of Texas market on four contiguous lots.
At that point, NRE had already been active in both market-rate multifamily and hospitality properties.
“We saw student housing as a blend of conventional multifamily and some of the customer service skillsets needed for hospitality properties,” says Winograd. “We thought student housing was a nice way to enter a vertical that really fit the skillsets that our team had.”
NRE continued its expansion in the Austin market by acquiring another immediately adjacent asset, Town Lake, that was owned by the same company who had acquired Ballpark North and which was in a similarly distressed situation. In less than two years, NRE had then assembled about 3,700 student housing beds and over 100 acres in Austin. The company implemented its capital improvement and management strategy at all of the assets and, at the same time, began the process of re-entitling the properties to create a master-planned mixed-use development that would be several million square feet. In the middle of that process it sold three of the student housing properties to another owner. It later sold the other two student housing properties to the same owner during the pandemic.
“We make our disposition decisions based on what is best for each individual asset and its investor pool and timeline,” says Winograd. “With Ballpark North, we decided it was in the best interest of the investment to exit after six years, once the entitlements had been received.”
In June 2017, NRE acquired a 440-bed student housing property called Avalon Place near the University of Texas at San Antonio. Similar to the strategy in Austin, the property required some capital expenditures to make the well-located asset an attractive alternative to on-campus housing, without being the most expensive option in the market. NRE still owns the property. The company would like to expand its holdings in the San Antonio market in the future, says Winograd, including market rate multifamily.
NRE acquired The Mix, a 685-bed project serving Georgia State University in Atlanta in December 2020. Since that time, the company has committed approximately $200 million to student housing investment, including acquiring the 416-bed The Retreat at Tampa near the University of South Florida, and a portfolio of student housing comprising approximately 900 beds near the University of Tennessee. Today, the company owns approximately 2,400 beds.
“We put a lot of research into which markets are right for us,” says Nazarian. “We pick the right geographic markets that fit our investment criteria, taking a data-driven approach.”
“We do not have a mandated investment ‘box’ or a mandate to deploy a certain amount of capital over a certain timeframe like many investors do,” adds Winograd. “We don’t have to be in Power Five markets. We like a university market to have a growth story and we like to see other factors that are leading to redevelopment and new development in other categories around the university. Our only mandate is to do good deals.”
NRE does not manage operations at its properties. At its size and scale, the company prefers to use third-party management. And its third-party relationships have led to new opportunities in deals. Two of its property management firms had existing clients who were seeking to exit properties, leading to two of NRE’s recent acquisitions.
“We are not beholden to any one management company, but we do consider our relationships with managers a key part of any deal,” says Winograd. “Whether it is in conventional multifamily, hotel or student housing, we know the major third-party managers. We know that some have better experience in some markets than others, or with a certain sub-property type than others. We also take into account what other properties they own or manage in a particular market.”
For its student housing assets, NRE has worked with managers like Landmark Properties, B.Hom and Asset Living. Nazarian walks every property before acquisition and visits every property several times per year.
“We are a very engaged owner,” says Nazarian. “Since we are the general partner in our deals, using our own money, we are very active in the management of the properties.”
As Nimes moves ahead it has plans to continue its expansion in the student housing space. It recently brought Michael Orsak, formerly with Campus Advantage, on board to lead its investment activity in the sector. The company says it would like to acquire several hundred million dollars’ worth of student housing over the next few years. “Student housing has become the focal point of our investments in commercial real estate,” says Winograd.
This article was originally published in the September/October 2021 issue of Student Housing Business magazine. To subscribe, please click here.