Mike Womack: Three Ways to Maximize NOI in Student Housing

by Katie Sloan

After several years of decline due to the pandemic and publicity over student loan debt, it appears college enrollment is stabilizing, which is good news for student housing investors. Even with the recent drop off in enrollment, the top 175 American universities are still able to house just 21.5 percent of their undergraduates on campus.

This dearth in on-campus accommodations makes off-campus student housing one of the most in-demand asset classes in commercial real estate, creating a growth opportunity for investors, even against the backdrop of an unstable economy. Meanwhile, economic conditions now more than ever make it imperative for investors to maximize net operating income (NOI) and minimize capitalization (CAP) rates, therefore improving property valuation. 

Yet, as the student demand for affordable and functional housing amenities change, many properties and their investors are leaving money on the table. These days, convenience and connectivity reign supreme, and investors have an opportunity to demand a premium that increases NOI for providing the infrastructure and services that enhance students’ lives and the college experience. Here’s how:

Managed Wi-Fi Drives New Revenue

Deploying managed Wi-Fi service throughout a property creates a new revenue stream, attracts new tenants, and helps to retain existing ones. 

The typical internet service model involves properties signing 10–25-year deals with a local cable provider who pays an up-front fee for the privilege to wire the entire complex and be the exclusive service provider. 

But this leaves students on their own to set up individual service with the company, which can be quite inconvenient—not only because of the logistics in setting up the account (many students don’t have reliable income or established credit), but also the hassle of waiting for installation or service when they should be in class. It’s also not very beneficial for the property. Aside from the up-front fee and a nominal annual fee per door, there’s very little ongoing revenue generated for the property. Not to mention, in a competitive market, this set up can make a property less attractive compared to others that include a Wi-Fi service, creating higher vacancy rates.

That’s why demand for managed Wi-Fi has grown significantly: because it eliminates a major hassle for students and provides property-wide secure coverage beyond their individual unit, allowing them to use the pool, fitness facility and other common areas without losing their connection. 

But it also offers an ongoing revenue stream for the property and investors. For example, charging residents just $99/month for Wi-Fi (either separately or bundled with their rent) at a 300-unit property would generate over $365,000 in additional annual revenue.

Smart Energy Upgrades Lower Cost

Utility costs are a major operational expense for student housing, especially when utilities are included in the cost of the rent. There’s no incentive for students to be mindful of their consumption by turning off unnecessary lights, ensuring windows and doors are kept shut and reporting issues like dripping faucets or toilet leaks that don’t cause damage. That uncontrolled and unknown cost reduces NOI.

Smart energy solutions have proven to reduce energy consumption and cost in residential settings by about 8 percent, and building owners can leverage managed Wi-Fi to support their deployment. For example, installing smart thermostats that can be programmed for optimal temperature based on time of day or occupancy status can reduce both heating and cooling costs. Building owners can control the temperature in common areas to reduce usage substantially, especially during unoccupied hours, while still giving students control within their own units. Similarly, smart shades that open and close based on seasonal and sunlight conditions have been shown to cut electricity bills by nearly 15 percent in residential settings. And smart water flow sensors can help properties spot pesky leaks — those little drips for which the cost can quickly add up when multiplied over weeks or months and hundreds of units.

In addition to the cost savings, these eco-friendly amenities can also attract new student tenants who prioritize sustainability. With growing concerns over climate change, young people are especially keen on reducing their environmental impact, and offering a greener living environment can be a competitive differentiator that helps drive up rentals, renewals, revenue and NOI.

Mixed Use Boosts Income & Appeal

Mixed use properties that include both residential and commercial space are also in higher demand, and provide an additional opportunity to grow revenue and occupancy. Adding a coffee shop, smoothie bar, convenience store or snack stand provides students both convenience and a sense of community that supports their busy lifestyles. 

There’s also the option to offer small business office space or co-working environments, or even on-site childcare—not every student is 19 years old and single, after all. Roughly 86 percent of graduate students live off campus and may be married with children. The convenience of on-site childcare could be a huge potential draw for a more mature student demographic. 

Investing in mixed use has the obvious benefit of driving new revenue and increasing NOI through commercial leasing agreements, but it, too, can help attract and retain renters, who would also be willing to pay a premium for the convenience amenities. 

It’s worth noting that investing in a managed Wi-Fi deployment can also support mixed use. Businesses will certainly need connectivity for their communications and point-of-sale systems, and having secure, configurable bandwidth to support their needs is an attractive amenity. 

As economic uncertainty persists, student housing investors need more assurance than ever that planned or existing properties can generate sustainable revenue and maximum NOI. By investing in amenities that provide the connectivity, sustainability and convenience that students demand, investors can look forward to higher property valuation and lower CAP rates as the student housing market expands.

Mike Womack is vice president of partner sales with Nomadix.

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