Real Estate Market

Student housing investments moving to head of the class

by Broderick Perkins

(9/22/2011) Erate Exclusive - Spurred by increased college enrollments and the related potential for rent hikes in student housing, investments in the sector are getting easier to finance.

A report by the National Real Estate Investor Online (NREI) says capital markets are bullish on student housing investments.

While the report points to larger commercial developments, there is an upside for smaller properties as well.

Another recent report revealed a host of hot student housing towns for smaller investors.

For the big boys and girls, NREI says the most aggressive lenders might quote a rate as low as 4.5 percent to 4.75 percent for a seven-year solid-asset secured mortgage. Low-5 percent rates are more likely with a 10-year transaction.

Lenders active in student housing limit loan-to-value ratios to 70 percent, but a strong owner-operator could get a ratio as high as 75 percent, even 80 percent from construction lenders.

The best student housing properties aren't run-of-the mill, NREI reports.

Students and their parents want:

• Connectivity. High speed broadband Internet connection is paramount.

• Online amenities. College families are busy. They don't have time to schlep out to each campus looking for housing. They want online search, application and rent payment services.

That doesn't just mean laptop or desktop computer access, but access via smart phone, tablet and other mobile devices.

When problems arise students also want to communicate with apartment managers via text and email rather than the phone or in person.

• Apartments, not dormitories. Students want what they have at home, their own bedroom, bathroom, maybe a pool, workout facility or quiet room for study groups.

Potential real estate investors can find hot properties off campus, but investing in a REIT (real estate investment trust) that has a student housing portfolio is another option.

That's especially true for on campus properties.

Experts say cash-strapped institutions of higher education want to focus financial resources on academics and more may outsource their housing needs.

"REITs, armed with access to public equity and a relatively low cost of capital, are actively supplementing off-campus projects with various models of on-campus development activities," NREI reports.

Learn more about REITs with astudent housing component on NREI.

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