Continued Industry Growth, High Investor Interest Highlighted at InterFace Student Housing

by Katie Sloan

Austin, Texas — Almost 1,300 leaders from across all facets of the student housing industry joined together in Austin this week for the 10th annual InterFace Student Housing conference, held at the J.W. Marriott.

The conference comes to a close today after two and a half days of networking and panel sessions on a range of topics from the state of student housing development, to trends on- and off-campus and the present and future of the industry. 

If there is one takeaway from this year’s conference, it is that the industry is as robust as ever. Institutional capital continues to flood into the space, rental rates are on the rise and demand for new supply continues to be seen. 

The conference kicked off on Wednesday, April 4, with the 7th annual SHB Open Golf Outing at the Fazio Canyons course at Barton Creek Resort & Spa, and then transitioned over to the fourth floor of the J.W. Marriott Austin, where — for yet another year— a record-breaking number of attendees met to network and build new relationships. 

The afternoon began with the popular Speed Networking session, where industry experts participated in short, four-minute conversations designed to spur discussion and foster new relationships.

The group then moved into 26 InterFace+ Info Roundtables on topics ranging from successfully implementing mixed-use at Tier 2 and 3 schools, to a capital markets update and best practices for housing international students. The evening culminated with a networking cocktail reception, where attendees were able to both forge new relationships and build on existing ones with fellow attendees and more than 70 exhibitors. 

Thursday kicked off with a networking breakfast and workshop on safeguarding and growing NOI through pro-active expense management, and was followed by the conference’s first general session, titled “The Power Panel.” This session brings together a consortium of CEOs from the industry’s top companies to discuss their perspectives on industry trends, the future of the sector and capital markets shifts, among other topics.

“There has never been a more intriguing time to be in the sector,” began moderator Peter Katz, executive director of Institutional Property Advisors. “The vast majority of the industry is showing significantly solid year-over-year NOI growth, coupled with institutional and private capital flooding into the space. The quality of the product and the performance of the industry stands on its own among other real estate sectors.”

“Being the 10th anniversary of this conference, and thinking about all of the conversations that we’ve had over the last decade, we’re finally realizing everything that we had hoped would occur in the industry,” continued Bill Bayless, CEO of American Campus Communities.”When you see the cap rate compressions taking place, and the global equity that is flowing into the sector, it is all based on the risk-adjusted return that we, and so many of the sector’s companies, have put forth over that decade.” 

“When you see the stability of cash flows that this industry offers, coupled with what is still a supply and demand imbalance in favor of more supply needed, it is a rare opportunity in real estate,” said Bayless.

Wes Rogers, president and CEO of Landmark Properties, points to stability and continued demand as drivers for investment in student housing properties. “Investors that we talk to are attracted to the space because of the stability of cash flows over a long period of time,” said Rogers. “They’re also attracted to the supply and demand fundamentals. Forty-five thousand beds being delivered nationally is less than enrollment growth at the top 180 universities. Big picture, supply and demand is still in great shape, which is not necessarily the case in the multifamily sector.”

Randy Churchey, CEO and chairman of the board for EdR, also points to the wealth of information available today as a catalyst for the continuing increase of institutional investment in the sector. “You have two public companies that publish information all of the time, and stock analysts following those companies,” said Churchey. “Axiometrics has data out about how well the industry has performed, as well. That wealth of data available for institutional investors to look at and analyze has helped a great deal — and the data is largely positive for investments in our sector.” 

The next topic of discussion was tax reform, and its impact on commercial real estate as a whole, and more specifically the student housing sector. “At first, we were very nervous about the new tax reform legislation, as it increased the hold period for carried interest from one year to three years,” said Rogers of Landmark. “We employ a lot of carried interest, and have been able to successfully convert the vast majority of our income to long-term capital gains over the years, so we were very concerned with that increase in time and what it was going to do to the tax rate that we paid.”

“Fortunately, we’ve been largely able to structure around it,” continued Rogers. “On the net, it’s probably going to be good for us because of the lower ordinary income rates that result, despite having the same long-term capital gains.”

Peter Stelian, CEO and founder of Blue Vista Capital Management, disagreed. “I think the capital gains issue is going to be a huge issue,” he countered. “I don’t think that the Treasury department has fully sorted out the issue, nor has the development industry fully absorbed the issue. In particular in student housing, as opposed to traditional multifamily, it puts a lot more risk on a developer.”

“We have a fairly active development business — probably about $500 million worth of student housing under development right now,” continued Stelian. “The concept of going from one year post C of O to three years post C of O, and those additional lease-up cycles and exposure to new supply in markets — there’s a tremendous shift of risk there for the development community that is focused on those waterfall structures that provide a carried interest or incentive fees.”

In 2017, the industry saw another year of reduced deliveries — closer to 40,000 beds — after experiencing an all-time high of 63,000 beds in 2015. “The natural barriers to entry that exist in most college towns are why you have seen the slowing,” said Bayless of American Campus Communities. “If you go back five to 10 years ago at this conference, I would say back then 70 percent of the developments were taking place a mile further from campus, as people did not put as much credence on proximity to the campus and really driving consistent occupancies and rental rate growth.”

“As you have seen company’s business plans appropriately shift, the real opportunity in the sector for the greatest stability of cash flows is pedestrian to campus,” continued Bayless. “Those sites are fewer and far between, so the reduction that you’ve seen is a compliment to everyone in the room in terms of acknowledging the true fundamentals for success in terms of proximity to campus. It’s harder to do those deals.”

Churchey of EdR agrees. “The folks that got killed in student housing back in 2008, 2009 and 2010 were really the ones that developed a long way away from campus,” he said. “What they saw was rent stability with occupancy volatility. Within a half mile from campus, there is a natural barrier to entry because there’s a finite amount of land. If developers start to develop two or three miles from campus, I’m sure they will get pro formas to work, but those are the pro formas that I don’t think are going to continue to work. If you get outside pedestrian to campus locations, it really opens up a whole swath of available land to build upon, and if that is where developers end up going, that will hurt the industry.”

Katz shifted the conversation by noting that 2017 saw large portfolio institutional acquisitions by Mapletree Investments, American Campus Communities, and two different portfolio acquisitions by The Scion Group, GIC and CPPIB. He then questioned the panel on the impact of these large portfolio transactions on the sector, and on whether or not they foresee continued industry consolidation in the years to come.

“We strongly prefer buying portfolios for a litany of reasons, including that operationally, it’s a lot more attractive to onboard significant portfolios at once as opposed to piecemeal,” said Robert Bronstein, president and co-founder of The Scion Group. “We’re absolutely continuing to pursue them — we’re pursuing several right now. When you talk to the kind of institutional capital that was referenced earlier in the panel, one of the biggest issues they have is being able to deploy equity in scale. Scale is defined by $200 million to $400 million of equity. That’s not attractive to try to accomplish in $20 or $40 million acquisitions.”

“I believe that people have looked to these large portfolio transactions and felt that was an intriguing way to put significant money to work at arguably a more attractive return profile than piecing together a bunch of one-offs,” continued Bronstein. “It’s also about the natural consolidation of a traditionally fragmented industry. We’ve gone from singles, to doubles and triples, and now we just did a 24-property portfolio. I think that’s exactly what one should expect as the pace of consolidation accelerates.”

Each CEO noted strong performances for the year, and an optimistic outlook for years to come. After a brief networking break, the conference picked back up with concurrent sessions on topics ranging from the state of student housing development and the challenges and opportunities in today’s development environment, to leasing and marketing better than the competition, an investment market update and the current state of technology and where it is headed. 

Following a networking luncheon, attendees reconvened in the main ballroom for a session titled “State of the Industry: An Investment, Development, Financing, Leasing & Operations Assessment,” moderated by Bob Clark, CEO of Peak Campus.

Industry experts who joined in the discussion included Harrison Street Real Estate Capital Director Barrett Lowell; Donna Preiss, founder and CEO of The Preiss Company; Timothy Bradley, founder and principal of TSB Capital Advisors; Marc Lifshin, managing partner of Core Spaces; and Ryan Lang, executive managing director of ARA Newmark.

Sessions continued through the afternoon on topics including the secret to successfully planning, building and operating urban infill developments, to designing projects that work for today’s developers and tomorrow’s residents and sourcing and buying value-add deals.

To end the evening, Student Housing Business presented its Innovator Awards to companies for excellence in various aspects of student housing. Voted on by a panel of over 125 industry experts, 25 awards were presented in categories such as best off-campus development,  best public/private partnership development, and best renovation of existing university housing.

Big winners of the evening included American Campus Communities, Landmark Properties, Aspen Heights and Core Spaces. American Campus Communities took home five awards in total, three of which were garnered by its on-campus development Tooker House at Arizona State University. 

Landmark Properties took home three awards for off-campus properties, two of which were awarded to The Standard at Gainesville near the University of Florida. Aspen Heights also took home three awards, including best off-campus turnaround project for its renovated asset Avery in Fresno, California.

The winner of the coveted off-campus award for Best New Development of more than 400 beds was Campus Apartments for its 114 Earle development in Clemson, South Carolina. Click here to see the full list of winners. 

The conference continued Friday morning with more panel sessions and networking, with topics including the state of on-campus housing, best practices in renovating and rebranding and dealing with late deliveries.

The 10th annual InterFace Student Housing Conference concluded just after noon, bringing together student housing owners, investors, developers, operators, lenders, architects, contractors, industry suppliers and vendors.

Student Housing Business and InterFace Conference Group would like to thank all of the attendees, sponsors, exhibitors and speakers who helped make InterFace Student Housing 2018 a resounding success.

— Katie Sloan 

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