Back in the day, many college students lived at home and walked or rode a bus or subway to campus and those who opted to go away to school largely lived in student housing. Things have changed. Students nationwide now often have the option to rent apartments near a campus or even two- and three-story homes and share them with classmates.
Because many colleges and universities are trying to keep students on campus for safety and other reasons, they have raised the bar regarding what the rooms, amenities and even the buildings include. As a result, some have become quite posh with swimming pools, fitness centers, and apartment-style units where students have their own bedrooms and sometimes bathrooms and share a living room and kitchen.
This housing product has caught the eye of big developers since the industry is undergoing consolidation. But there are many smaller developers also building big and small units near campuses, as well as individuals buying up houses and converting them to apartments to rent out as a good investment.
Though national enrollment for college students has been in decline—down 1.4 percent in fall 2016 from the year before, according to the National Student Clearinghouse Research Center, this segment of the housing industry remains healthy. The student population is expected to reach 23 million by 2020, according to the National Center for Educational Statistics. The prime reasons are a new crop of students entering each fall and graduate students often wanting to reside in more traditional housing than in expensive apartment buildings off-site or in freestanding houses that often need to be furnished.
We talked with Tyler Perlmutter, chief operating officer at Pinecrest, a small student housing developer and owner based in Chicago that is completing its fourth student housing building near the University of Pittsburgh and Carnegie Mellon University. Here are key points he shared for those who might consider investing in this niche.
Location, location, location. Pinecrest considers proximity to a campus key, particularly for those universities where many students don’t come with a car such as the University of Delaware. The building should be no more than a five to 10-minute walk away. All buildings are also built with parking such as the one it constructed near Boise State University where almost everyone comes with a car. The company tries to build on enough land to construct a property with between 150 to 250 units and a total of 400 to 700 beds—which is how numbers are defined in this niche. Most apartments have units as small as just one bed—a studio—but up to four beds. “We look for a yield on cost at stabilization of 6.5 percent—or higher,” says Perlmutter. The buildings tend to go from four up to 10 stories. To find the right sites, the company reaches out to student housing developers, brokers, and land owners at universities where they see more demand than supply.
Niche difficulty. What’s made it harder is that enrollment is declining, and land is scarcer. So far, Pinecrest has selected more urban than suburban locations—in Pittsburgh, Knoxville, Boise, and Newark—and focused on constructing Class-A buildings.
Desired amenities. Just as with multifamily housing, trends change, in part based on overall student preferences and weather. While many universities in warm weather climates have seen developers add swimming pools in recent years to give the buildings a resort feel, Pinecrest steers clear of that option but goes for well-equipped fitness centers and bicycle storage because of interest in healthfulness; nice touches such as stainless-steel kitchen equipment, wood floors and furniture; adequate student study areas for those who want a change of scenery from their apartments, and permission to bring along pets. Its first pet-grooming center will be built at its building near the Pittsburgh campuses. And as with multifamily buildings, developers of student housing are starting to hire activity directors. Some of Pinecrest’s buildings have yoga teachers who conduct classes on decks, and others who schedule events each week related to a social activity of some kind.
Secure security. This is another essential both for students’ and their parents’ peace of mind, according to Pinecrest. It requires students to use a key FOB to enter their building, elevator, apartment and bedroom, and most buildings have staff on the premises on weekends.
Personalized perks. Pinecrest has found it important to tailor features to the idiosyncrasies of each matriculated student body. For those who are at college in Boise, that means ski storage, since many ski. For those who will head to the University of Pittsburgh when its building there is completed by 2019, it named it The Bridge on Forbes because of the area’s iconic bridges and it offers plenty of study options for the hard working students at the school and nearby Carnegie Mellon University. Lastly, for University of Delaware students, Pinecrest’s building lies near a bus stop since most don’t bring a car.
Competitive pricing. Making prices competitive with dorm housing has been essential to fill up. The monthly average is $650, which does not include meals. The fee does include water, gas, Wi-Fi, and cable TV—electricity is extra. When parking is available, there’s an extra charge for that, too, and it averages $50 a month per car. Unlike nonstudent apartment housing, it doesn’t require a security deposit. Students can be signatures on their lease if they have enough and/or acceptable credit or they can have a parent sign. The company uses a third party to handle each credit application.
Periodic remodeling. Buildings and units get hard use with changing student clientele, and the company—in business since 2013—plans to replace furniture and make other changes every five to seven years or as needed. New students rent for 11 ½ months, so there are two weeks in early August when these changes can be made. Returning students rent for a full 12 months.