NEWPORT BEACH, CA—The two pure-play student housing REITs, American Campus Communities and EdR, each made the news last week at different ends of the off-campus vs. on-campus spectrum. ACC said it would pay $590.6 million to recapitalize and ultimately acquire seven off-campus properties from affiliates of Core Spaces and DRW Real Estate Investments. EdR announced the hiring of industry veteran Jason Taylor as SVP within the company’s university partnerships team.
Both of these announcements dovetail with current student housing trends, as identified by Green Street Advisors. Analyst Ryan Burke tells GlobeSt.com that Austin, TX-based ACC’s deal reflects the direction in which REITs and other institutional buyers are headed: namely, away from second-tier markets and lower rents. The four existing properties and three development sites in the Core Spaces/DRW portfolio all are in blue-chip submarkets within walking distance of schools such as the University of Seattle and Purdue University.
Burke, who covers niche sectors including student housing for Newport Beach, CA-based Green Street, also points to ACC’s plan to finance the portfolio recap/acquisition in part through monetization of existing assets, whether through joint ventures or dispositions. “Recycling capital is going to be a key driver for the REITs going forward,” he says.
A recent Green Street report on the student housing sector also cites EdR’s plans for $100 million to $200 million worth of dispositions as a harbinger of what’s to come. “Inherent yet unpredictable university-specific risk will surface more regularly as the sector matures, rendering more consistent portfolio culling necessary as a form of risk mitigation,” the report states.
The Memphis-based REIT’s hiring of Taylor, who has has participated in the planning and procurement of nearly $1.5 billion of successfully executed public private partnership student housing projects, squares with another sector trend identified by Green Street. “A particularly compelling opportunity exists for developers in partnering with universities to replace the country’s outdated on-campus housing stock,” according to a report issued this past March. An August report noted that the trend, which both REITs are capitalizing on, is “gaining momentum.”
Longer-term, Green Street says that new off-campus student housing deliveries for the 2018-2019 academic year are expected to decrease 10% from what were “manageable levels” over each of the past three years. “Although market-level conclusions are difficult to draw from national-level data, the news is favorable, particularly considering expectations for slowing enrollment growth in coming years.”