Pomona College Precast Dorms

Student Enrollment Increases Demand for Housing

Even as the first of the millennial generation transforms the modern office, their younger siblings are attending college as never before.

Fall college enrollment in the United States touched seven successive new highs from 2003 through 2010, according to the U.S. Department of Education. While growth is expected to slow over the next decade, by the year 2021, twenty-four million people will be enrolled in degree-granting, two- and four-year institutions nationally. Ten million more people will be attending U.S. colleges and universities than in 1996, and nearly all of them will be millennials.

That growth, together with sharp competition for students plus pressure from some surrounding communities to contain campus life, is propelling a wave of new purpose-built student housing on and near U.S. campuses. An estimated 550,000 new student beds have been built since 1990 at four-year schools nationwide, and an estimated half-million more beds are expected by 2022.

“For top U.S. universities and colleges seeking to draw the most accomplished and ambitious students from around the globe, quality on-campus and proximate housing has become crucial to student recruitment and retention,” said Craig Keys, an associate vice president and head of civic engagement at the University of Southern California. USC plans to invest more than $600 million to build 3,000 new student beds, new academic space and a neighborhood retail center at its Los Angeles campus.

With approximately 80 million people, the millennial generation is the largest demographic bulge since the baby boomers. Also known as the echo boomers and Generation Y, the oldest millennials (born in the early 1980s) are now in their mid-30s while the youngest, born around 2000, are entering high school.

Since 2004, three U.S.-based real estate investment trusts specialized in student housing have sold initial shares to the public, citing opportunity to consolidate and professionalize property ownership as the sector anticipates a period of strong growth.

Memphis, Tenn., -based Education Realty Trust Inc., the second largest of the three REITs, signed an agreement with the University of Kentucky in December 2011 to revitalize its on-campus housing and expand it to 9,000 beds. The REIT leases the land from the university but owns and manages the buildings. The agreement represents an in-flexion point for the company and the industry at large. Discussion with similarly situated universities has increased, and it expects the structure to become more common, the REIT’s management said.

College Student Enrollment Graph
Source: National Center for Education Statistics, U.S. Department of Education

A first phase was completed in August 2013 with 601 beds. The second phase with 2,381 beds is under construction with a total project cost of $138 million. A second component of the second phase, involving 1,610 beds in three buildings and a $101.2 million budget, has been financed by the state.

“It is only in the last 10 or 12 years that off-campus purpose-built student housing has come to the forefront, and that is really nice housing for students that is rented by the bed, not the unit,” said James Arbury, vice president for Student Housing at the National Multifamily Housing Council, an apartment industry advocate based in Washington, D.C.

Many modern students now expect the standard and are unwilling to accept less, he said.

Landlords have begun to distinguish among their product types, offering multiple brands and prices. Austin-based American Campus Communities Inc., the largest and oldest of the three public REITs with more than 100,000 beds, offers five living choices from garden-style apartments to full-service residence halls to urban high-rises. “Ultimately, it is a value proposition to students and parents,” executives told analysts at its 2013 Investor Day. The company targets public and private “flagship” schools.

While in the past dorms have tended towards dense, often utilitarian design, new generations have higher expectations. As young people pay more for their secondary educations than their parents did, they have come to expect amenities that, a decade ago, would have seemed luxurious. Full kitchens, on-site laundry facilities, private bathrooms, access to fitness facilities, high-speed WiFi, and even swimming pools are all becoming more common. Some campuses are offering an increasing number of units, on-campus, with private bedrooms.

Even with construction of 550,000 new beds since 1990, another one million beds would be needed to meet current demand, managers for Campus Crest Communities Inc., the newest of the three REITs, told analysts in December. Projected construction of 500,000 student beds at four-year private nonprofit and public U.S. universities from now until 2022 will do little to shrink the gap.

Together the REITs now own nearly 175,000 college-student beds and reported nearly $800 million in total revenue in the first nine months of 2013.

At general contractor Sundt Construction Inc., the company is completing a third $70 million phase of a 1,200-bed student housing complex at the University of California, Davis, the latest in a string of projects in California, Arizona and New Mexico. Between the student-housing market and the rising demand for senior assisted-living and military housing too, Sundt is optimistic about the potential for its business, said David Downey, a Sundt senior project manager in Sacramento.

So is Clark Pacific, a Northern California-based pre-cast concrete design and manufacturing company that is finishing its third residence hall construction project since 2009. The company is perfecting new seismic technology that allows its pre-cast panels to be used to build a structure as well provide architectural cladding. The precast technique can shave months from a project’s construction timeline, and it is well suited to the generally uniform lines of student housing.

At USC, gaining city permission for the new student housing, which includes 150,000 square feet of neighborhood retail and some academic and classroom space, has been an education in the modern realities of urban redevelopment, Vice President Keys said. The process took four years and attracted broad community interest, including opponents. “We had over 800 people showing up at the council meetings to support us,” Keys said.

In the end, the university, a private, non-profit institution, agreed to provide up to $20 million to a local housing trust fund to support additional affordable housing, agreed to provide services and counseling including loans to businesses affected by the redevelopment, and among other community benefits said it would to create a new housing law clinic staffed by a new USC faculty member and law students.

But the new student housing is crucial to re-positioning USC’s historically commuter campus to one that has a stronger residential component, especially for incoming freshman for whom a residence hall can be a vital connection to the campus, its community and its resources, especially in a huge city like Los Angeles, Keys said.

Right now, USC has 32,000 full-time equivalent students and more than 12,000 beds on and around campus. Four thousand of the off-campus beds are privately owned and sorority and fraternity houses account for 1,200 more.  The new housing fills a void. “We are competing for the best students in the world, and it makes the campus more competitive and desirable.”

Public REITs:

American Campus Communities Inc.

HQ: Austin, Texas

IPO: Aug. 17, 2004

Total Revenues: $476.6 million (nine months, ended 9/30/2013)

Operating income: $83.1 million

Net income: $78.9 million (includes a $52.8 million gain from the disposition of real estate

Portfolio: 165 properties with 100,600 beds in 32,700 apartment units (as of Sept. 30, 2013)

Source: 10-Q for the period ended Sept. 30, 2013


Education Realty Trust Inc.

HQ in Memphis, Tenn.,

IPO: Jan. 31, 2005

Sources of revenue: Collegiate housing leasing, development consulting services, and management services

Nine Months Ended Sept. 30, company reported lease revenue of $118.9 M and $131.8 M in total revenue

Net operating income of $57 M

Total Owned Beds: 28,407, including 9,023 beds related to new developments and acquisitions since August 2012

Source: 10-Q for period ending Sept. 30, 2013

Campus Crest Communities Inc.

HQ: Charlotte NC

IPO: October 2010

Total Revenue: $114.5 M (nine months ended Sept 30; includes more than $40 million related to development, construction and management services)

Net income $10.96 million in nine months:

At IPO, 27 properties in 27 markets and 13,580 beds

Dec. 2013: 82 properties in 62 markets with approximately 44,000 beds

Sources: 2013 Investor Day Presentation; 10-Q for the quarterly period ended Sept. 30, 2013

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