Larimer and Buell: Student Housing Outpaces Multifamily in the Face of COVID-19

by Katie Sloan

Throughout the COVID-19 pandemic, student housing has performed remarkably well compared to other property types, showing particularly high occupancy rates and consistent rent collections. In April, May, June and July, monthly collections exceeded 95 percent of scheduled rents across the country. When comparing Berkadia’s monthly Student Housing Market Trends Report to the National Multifamily Housing Council’s (NMHC) Rent Payment Tracker, student housing collections exceeded conventional multifamily collections every single month.

From a macro level, we understand why most assets have performed at such high levels during this unprecedented time. For one, the vast majority of student housing leases include the fall, spring and summer, meaning most students have already executed leases through the end of July. We have also found that government-backed student loans have been used to assist students with their living costs, which allows more flexibility. The combination of these factors shows that the residents of purpose-built student housing properties are more adaptable to the changing economic environment. Student housing is fortunate to have already cleared numerous hurdles as an industry at this point, but the sector will be closely monitoring the next couple of months.

Investors are waiting for more than just anecdotal evidence

Despite strong performances from student housing properties, we have seen transactional volume — for the most part — hit the pause button. This can be largely attributed to investor groups wanting to understand both university as well as residents’ comeback plans. Once these investor groups have the clarity they are seeking and capital markets on their side, it appears most will be eager to take advantage of historically low interest rates and aim to leverage that with the resiliency of the student housing space. 

From a capital markets perspective, the industry has been challenged with decreased liquidity compared to robust historical norms and there seems to be prevailing a ‘wait and see’ approach for both acquisitions and refinances. Obviously, our industry is going to need to see the debt markets return before we see transactional volume start to normalize. It appears this may resume once agencies see students returning to universities and to their off-campus college homes. 

All-in-all, we do remain largely optimistic that the student housing transactional volume will pick-up in the late third quarter and early fourth quarter once data becomes available on market occupancy and enrollment at universities across the country.

Approaching the fall with cautious optimism

As we tiptoe towards the fall, most universities have a general reopening plan that they  will be refining and finalizing up until the first day of school. One thing which seems to be consistent throughout the country is that almost every university has reduced the capacity of on-campus housing compared to years prior, placing an even greater number of students in off-campus housing. 

As on-campus housing is further de-densified, we are also seeing more colleges and universities working with off-campus providers to take overflow students and directing students to off-campus options. Not only are there more students in the off-campus market, but schools are now directly feeding this lease-up funnel. 

In fact, respondents to Berkadia’s survey report indicated that pre-leasing increased dramatically in June and July. As a result, we expect the off-campus market to be solidly leased-up over the next few weeks. Such growing demand will further strengthen the student housing market, particularly as it has led to a positive trend of demand without the need for new beds to be delivered — a key factor critical to both continued and sustained industry growth.

Another positive for student housing is the fact that roughly 70 percent of students remained in off-campus properties even after schools transitioned to online learning this past spring — indicating to us their preference to remain in their college environment amongst their peers. As a result, if and when some of those universities make the shift towards online learning for the coming fall, it is likely that many students will continue to remain at school and in their off-campus homes.

For larger, well-known and highly regarded universities, we anticipate that student housing property collections and occupancy rates will continue to be reliable, resilient and provide a defensive investment-play. Over the next few months, we firmly believe that student housing — as it proved during the Great Recession — will continue to offer one of the best risk-adjusted returns in real estate. 

Kevin Larimer and Brandon Buell both act as senior managing directors of student housing at Berkadia.

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