Austin, Texas — After a slower year in 2023 from a transactional standpoint, things are finally starting to look up, according to speakers at this year’s ‘State of the Industry’ panel during the recent InterFace Student Housing conference in Austin, Texas.
‘Murky’ was utilized to describe the current state of the market, following a year of uncertainty with regard to cap and interest rates, but the sector’s strong fundamentals and growing interest from investors are reason to remain optimistic.
“We’re facing more challenges now than many of us have experienced in recent years —whether you’re buying, selling, developing, operating or financing,” said Ken Carl, senior managing director with Kayne Anderson Real Estate.
“Frankly, however, that’s the way it is supposed to be,” he continued. “I think we got accustomed to it being easy, but it is murky right now. If you stick to the tenants of working with the right partners and finding great value in real estate, you can find your way through. But it’s a market of haves and have nots, and we feel incredibly fortunate to be in the capital position that we are in.”
Eric Frank, co-founder and CIO of Cardinal Group Cos. attributed the murkiness that has been present of late to the recent period where interest rates and inflation were on the rise. “It has been a very uncertain period where it was hard to justify buying anything with interest rates going up,” he said. “I think we have a clear signal that interest rates are topped out and that’s a clear signal that valuations, too, have likely bottomed out. From my perspective, we’re currently having a moment of clarity for moving forward.”
“It’s certainly less murky than it was 12 months ago,” agreed Ryan Lang, vice chairman and head of student housing with Newmark. “Obviously there’s a lot of choppiness out there, but from a capital supply perspective, things have recently changed in a positive way. It seems like most of the open-ended vehicles are seeing inflows that will come into effect over the next six to nine months, which will give them more capital — particularly in the core and core-plus markets.”
The industry is also seeing foreign capital start to come back in a significant way, according to Lang. “We’re seeing transaction volume up rather significantly,” he noted. “If you look at year-over-year data, we’re up 22 percent in terms of transaction volume, so that is certainly less murky. Cap rates also compressed by 30 basis points in that same period.”
Looming Debt Maturities
Moderator Bob Clark, president and CEO of PeakMade Real Estate, then brought the discussion over to debt. “In the next 24 to 36 months, there’s probably $2 trillion to $2 trillion worth of commercial real estate debt that’s going to come to maturation,” he said. So what does that mean for the overall economy? And how will it impact student housing?
For Andy Feinour, president of Student Quarters, the expected impact is minimal. “There’s a lot of talk about commercial debt maturities, but I don’t think the results are going to be that interesting — especially in the student housing space,” he said. “There really isn’t any asset level distress in the sector. Some of the maturities will cause some refinancing and some will cause involuntary sales, but the transaction market has picked up and I find myself on the optimistic side of the spectrum.”
Further, Feinour believes the challenges that other sectors are facing are going to shine a positive light on the student housing sector. “There are more investors interested in the space than ever before and there is more capital,” he said. “While we might say things are softening the fundamentals behind student housing, the supply and demand characteristics are very strong. I think we’re entering the dawn of what could be a very exciting five- to seven-year run.”
John Jacobs, global head of capital markets with GSA, agreed, noting that the strong fundamentals in student housing are not exclusively being seen domestically, but also abroad. “Whether it’s in the U.S. or across the globe, student housing is an extremely good sector to be in,” he said. “Demand is up, supply is down. We have a lot to be positive about. We’re going through a period of adjustment across commercial real estate, but the reality is there is equity in student housing.”
—Katie Sloan