Student Housing Gets A Failing Grade

On today’s show we’re talking about Student housing. I’ve been a student housing investor since 2012. Historically, I’ve loved student housing. I got my start by owning property in the shadow of Temple University in Philadelphia.

When you add together the revenue from each room in a student rental, it adds up to much more than the revenue from renting, say, a 3 bedroom apartment.

Yes, the turnover is high. Yes, students can be messy. They all tend to move in and move out on the same day. The cycle for student housing follows a very specific schedule. If you miss the window for rentals, you might be facing vacancy for the entire school year, not just a month.

But the big story in student housing is the massive change that is taking place in online classes.

Long before the mass move to online classes that happened mid-semester due to Covid-19, the trend toward online classes had been underway for more than a decade.

When I started investing in student housing, there was a shortage of housing next to Temple University. We were easily able to rent rooms for $600 a month and sometimes even $650 a month. By 2014, as more capacity entered the market, prices started to drop. When the university opened a new dormitory with 1,200 beds, the market flipped from under-supplied to over-supplied overnight.

So we started looking further afield. We held numerous meetings with architects, planners, and consultants in the city of Arlington Texas. Arlington is the home of the University of Texas campus. The largest UT campus is in Austin. But in order to get into Austin you needed a 90% average. You could get into UT Arlington with an 80% average and then transfer to Austin after two years. It was a way to get into the Austin campus with a lower grade point average. . We placed numerous offers on properties for development. Ultimately, we never did quite succeed in getting a large enough property to develop.

We decided last year in 2019 to take another run at delivering student housing to the UT market. We received the latest market study authored by the student housing office at the university.

What it showed was pretty telling. The campus had grown to 51,000 students. A large school by anyone’s measure. The combination of on-campus housing in one of 18 building, along with numerous projects within a short distance of the campus provided housing for 6,000 with approved projects in the pipeline that would ultimately bring 11,000 units of housing for a campus of 51,000 students. So far, it sounds like the addition of another 100 units would not create an oversupply situation.

But here’s where a small piece of data, changed our outlook completely. In 2019, 52% of the classes held on campus were also being simulcast online.

That meant that if a student lived in the Dallas Fort Worth area, they could spend an increasing amount of their academic year engaged with the university through their computer screen. If they needed to come to the campus once or twice a week, they would drive. The case for living on campus was starting to get weaker.

Well folks, now the Covid-19 pandemic has forced the acceleration of the trend that was already underway. Now I get it. There are some faculties that can’t be taught online. The school of dentistry won’t be taught online. The PhD program in psychology won’t be taught online.

In the past week, Queens University announced that the majority of its classes next fall will be conducted online. The University of Texas is holding the balance of its Spring term, and both summer sessions online. New York University is doing the same.

So if you’re the owner of student housing, you can expect negative cash flow this summer, and possibly into this coming fall semester.

You may need to take action now to develop creative marketing plans for getting your units leased before there is a glut on the market.