Like many things in life, today’s student housing communities are leasing based off two different factors. When cost isn’t a major (or at least not the biggest) issue, many students are choosing a property based on whether it fits their needs. Does it offer privacy? Are there top-notch amenities? Will they be exposed to different programs, events and experiences?
The other selling point is price. In this instance, determining whether a student housing facility is right for them comes down to one question: can they afford it?
Student loan debt in 2021 encompasses about 45 million borrowers who owe $1.7 trillion, making these loans the second highest consumer debt category behind mortgages. The idea of simply taking out more loans to fund housing, food, books, incidentals and, in some cases, lifestyle, isn’t met with the same level of acceptance as it might have been 20 years ago.
Then you have a pandemic to account for. On the one hand, COVID-19 has brought fears surrounding debt repayment and income stability to the forefront, supporting the idea that maybe price should be the priority when choosing a living situation. But it brought another type of fear as well. The fear of catching the virus. Becoming sick. Being out of work or off school. Passing it onto others. This particular worry has led some to rationalize the extra costs associated with, say, a private room or larger living quarters.
Whatever the priority, Jared Hutter, principal and co-founder at Aptitude Development in Elmwood Park, New Jersey, believes it’s the student housing operator’s job to figure out what makes their property stand out and then strategically market it to students.
“New dorms and housing options — whether they are on- or off-campus — should be used by schools as a marketing tool when they are recruiting students and selling the school to prospects,” he says. “Twenty years ago students didn’t give much thought into housing when they were looking at prospective universities. Today, we have seen high school students touring our buildings to get a handle on what their options may be if they attend the school.”
To Bunk or Not to Bunk
One of the biggest decisions student housing operators and students have had to make since the pandemic was whether they would double up on room occupancy. Christine Richards, president of management at Core Spaces in Austin, Texas, says the move back to single occupancy was certainly influenced by the pandemic, though it’s also a byproduct of cyclical trends.
“Trends change and cycle,” she notes. “We were at all privates in 2010, and then by 2020 — with the change to Gen Z — the value play of double occupancy became important. Shift to the pandemic, and we’re back to single occupancy. I don’t believe anything in this space is long-term. We shift as the demands and demographic shifts.”
Trends may be transient, but much of the industry’s existing inventory was built to accommodate either single or double occupancies. Today’s developers have learned from this and integrated flexibility into their latest design plans so operators can adjust to tomorrow’s preferences. But a lot of existing supply, is kind of set in stone. Sometimes literally.
“It is going to be hard for anyone to repurpose old dorms into something that is desirable amongst today’s students,” Hutter says. “Students today want more privacy, their own bathrooms and the best Wi-Fi. The old dorms were made out of cinder block, and in many cases it is cost prohibitive to repurpose these.”
Of course Raoul Amescua, vice president of development for the Michaels Organization in Camden, New Jersey, notes that single occupancy can easily be achieved in existing buildings. Whether it’s financially feasible is another matter.
“Existing facilities will just remove beds and other FF&E (furniture, fixtures and equipment) to make rooms single occupancy until there’s enough market demand to re-densify the rooms back to a higher occupancy per room, which allows them to offer more affordable bed rates for student residents,” he says. “Single-occupancy bathrooms will only work in markets and projects where rents are high enough to cover the increased construction costs. The project also needs to have enough GBA (gross building area) to still achieve needed bed counts and yields for a financially feasible project.”
Some institutions are relying on public-private partnerships (P3s) to finance new on-campus housing developments. This is a trend that Arent Fox, a Washington, D.C.-based law firm that represents educational institutions, investors and underwriters in educational financing transactions, sees continuing as colleges deal with construction cost increases, labor shortages and an impending enrollment decline tied to a low birth rate during the Great Recession. The firm notes there was a 9 percent drop in birth rates at that time, which will translate into declining admissions by about 2025.
Capstone Development Partners is a few weeks away from delivering Fusion on First, a mixed-use project for Arizona State University at its downtown Phoenix campus. The public-private partnership development will include 532 single-occupancy bedrooms for upper-class students and nearly 75,000 square feet of highly specialized academic space.
“There is very little ‘amenity’ space in the former sense of the word,” says William Davis, chief development officer for Birmingham, Alabama-based Capstone. “Instead, you can go downstairs and rehearse for an upcoming musical performance, create a new textile pattern in the fashion space or tinker in the maker space.”
Other recent P3 ventures include Greystar’s $450 million, 668-bed Academic Village at the University of California at Hastings in San Francisco’s Tenderloin District; and a new $134 million complex at the University of Massachusetts Dartmouth, which brought 1,120 beds and a 38,000-square-foot, 800-student capacity dining hall to the campus. The Hastings project is scheduled to open for fall 2022 classes. The Dartmouth project opened in fall 2020.
P3 projects are clearly still getting done, though the pandemic has presented a situation where some of these investments may seem risky to certain universities. That’s because the closures associated with COVID-19 caused some schools to fall below their planned occupancy for P3-backed housing, which means a project may not hit the financial performance benchmarks set by the lender. P3s can also make it difficult for universities to make unilateral decisions regarding closures or housing refunds.
Naturally, the single-occupancy trend extends beyond on-campus housing options. Off-campus developers like Aptitude are following the same trends as on-campus developers.
“The Marshall Birmingham is on the forefront of off-campus housing trends, given that we were able to design this project with a much higher percentage of lower-occupancy units,” Hutter notes. “We designed this prior to the pandemic and did our homework to truly understand the demand in the market. Coming out of the pandemic, our aggressive mix of lower-occupancy units should pay off well for the property.”
The 409-unit Marshall Birmingham will feature 10,000 square feet of amenity space, including fitness facilities, resident lounges, breakout areas, open-air social space, courtyards and a pool with views of the University of Alabama at Birmingham (UAB). Despite the lower bed-count, the Marshall Birmingham will accommodate some of UAB’s housing needs when it opens in fall 2022. The university has seen enrollment increase by 30 percent since 2009.
Tempering Student Housing Costs
More space, privacy and amenities represent one strategy student housing developers are taking to appeal to today’s college crowd. The other school of thought is to make housing more economical.
“We don’t think double-occupancy bedrooms are going away,” Davis says. “This is especially true in lower-division housing, as we think they remain important for freshman and sophomore housing, programming and for a lower price point. Affordability continues to be a major focus.”
David Pierce, principal at Parallel in Austin, Texas, believes the solution to providing more economical options doesn’t necessarily need to involve bare-bones buildings — though that’s certainly a strategy some developers take. Instead, developers can provide a mix of occupancies and unit types in a density-rich environment.
Parallel’s 558-bed Torre apartments near the University of Texas at Austin feature 15 levels of residential units. These configurations range from double occupancy bedrooms with shared bathrooms to private studios and traditional one-bedroom to six-bedroom floor plans with bed-bath parity in both two-story townhomes and flats. Torre offers common rooftop spaces with a pool, hot tub and grills; study and social media content facilities; package and delivery amenity space; lounges with kombucha, coffee and snacks; a locally curated art package for the property; 24-hour security controls; and a health and wellness package organized by management.
“The lesson with Torre is that in dense, competitive Tier 1 markets it’s important to provide options and to understand that our residents are diverse economically and culturally,” Pierce says. “You need to provide pricing and configurations to include that diversity while providing common amenities that are world class and rival the best hospitality concepts in similar markets, and to nurture the residents’ desire to succeed academically and socially.”
Loren King, CEO and co-founder of Trinitas in Lafayette, Indiana, also believes diversity, diversification and density can lead to a winning formula when trying to attract students from all backgrounds and price points. That is, if you let the market dictate where the project would do best and what design would be most efficient.
“Our design preferences do not lead the process,” he explains. “Our assessment of the local market, its supply and demand characteristics, the student demographics and related factors drive our approach to site selection and project design.”
This has led Trinitas to develop large, traditional-looking projects like the 530-bed, 20-story Atmosphere, which serves Arizona State University in Tempe, as well as low-rise, cottage-style housing like The One, which serves the University of Michigan in Ann Arbor. Atmosphere emphasizes urban amenities like a pool, fitness center and open-air skydeck, while The One is set on 32 acres with 9.8 acres of dedicated wooded conservation area and green space.
“We designed Atlas in Bloomington, Indiana, to be mixed residential,” King continues. “It offers cottage-style units, townhouses and flats in a mid-rise building. So, not only do we offer different unit plans, but we offer different living experiences and price points within a single property, broadening the appeal of the property within the market.”
Another way to create savings, Amescua asserts, is through green building.
“Sustainable design features like solar, as well as water saving and energy conservation systems that residents can actually see and point to can be a big driver for student housing moving forward,” he says. “This is in addition to enhanced programming for outdoor spaces.”
The Michaels Organization put this tactic to good use when developing the Green at West Village, a 3,300-bed, P3 project at the University of California, Davis. The complex is the largest net-zero energy housing project in the U.S., with photovoltaic solar canopies over surface parking, optimal building orientation and efficient MEP (mechanical, electrical and plumbing) systems, among other sustainable features. Green at West Village also includes indoor and outdoor community spaces, recreation fields, and a community building with a fitness center, multipurpose room and student support services.
Interest in lower-priced housing is so great that Amescua has also seen growing interest from universities in expanding their residential base beyond those who work and attend school on campus.
“Certain universities are proposing housing projects that would offer housing not only for students, faculty and staff, but for the greater community as well,” he adds. “This could include affordable, workforce and market-rate housing.”
Amescua cites California State University, Monterey Bay in Seaside, as one school exploring this option. He notes Michaels Student Living, the development arm of the Michaels Organization, is shortlisted for this project.
There is no clear winner when it comes to whether it’s better to focus on cost or the overall student experience. Preferences and priorities change, and each resident is different. The best student housing developers, Davis believes, are the ones who can take all these considerations into account and still come up with a project that pencils.
“We are seeing unit types evolve to satisfy both cost and personal space objectives,” he says. “Should you be able to strike the balance between affordability and privacy, we do see that trend continuing. Can you do it by creating more efficient, private bedrooms? Or by minimizing the out-of-unit amenity spaces? Or by more creative construction typologies?”
Those will be the questions to answer as the industry emerges from a year and a half of uncertainty and begins to chart a new normal. Students and their parents will look to student housing operators and developers for a smart and well-rounded housing experience…that does not break the bank.
This article was originally published in the July/August 2021 issue of Student Housing Business magazine. To subscribe, please click here.