Close-Up on Student Housing Investment Strategies

JJ Smith, President, CA Student Living. Image courtesy of CA Ventures

Student housing investors have begun rethinking their strategies. While some focus on properties that are close to campuses, others have already diversified their portfolio.  

In a Multi-Housing News interview, JJ Smith, president of CA Student Living and principal at CA Ventures, provides insights about the current status of the student housing sector in the U.S. and speaks about how developers can overcome challenges in oversupplied markets. Smith also explains why his company began expanding to other real estate sectors. 

Could you single out a trend that is gaining momentum in the student housing market? 

Smith While it’s always been about location, location, location for real estate success, just five years ago, the student housing sector saw a lot of non-pedestrian garden-style product. These properties have quickly been outperformed by core, infill pedestrian-style assets that are near to campus. Today, new campus-adjacent apartment complexes continue to see significant demand across the country, resonating with students, their parents and, as a result, investors. Proximity to campus, retail and nightlife helps students feel safe and secure in their new environment and helps ease the adjustment to life away from home.

How do you choose a location for a potential new development?

Smith: Without giving too much away, our strategy includes evaluating supply as well as on-campus requirements, which vary from one school to the next.

How has technology impacted the development of student housing assets?

Smith: Technology continues to enhance all aspects of the development process as well as the built product when fully operational. In the development stages, we utilize big and small data to identify markets, source land sites, improve design efficiencies through BIM (building information modeling) technologies and streamline construction processes—all taking valuable time out of the schedules. Once built, technology improvements have enhanced our ability to provide a safe and secure environment via top-of-the-line life safety features, access controls and surveillance systems that, together, provide peace of mind to residents and their families, many of which live hundreds of miles away. 

What are the main challenges in the student housing sector? How do you overcome them?

Smith: As the sector continues to evolve, property lease-ups have become more competitive in markets that have seen significant supply added in a short period of time. To move past this challenge, it’s important to fully understand where your product stands relative to its peers. At CA, we break down our markets into submarkets based on location and quality of asset and make sure across the organization that we agree on the submarket assigned to each of our properties. It can also change year to year, so it’s important to continuously evaluate your product and its market position. 

Until 2012, the company’s focus was on student housing properties. What caused the expansion to other sectors?

Smith: We look for corners of a sector where we can fill unmet demand with an offering that is differentiated without assuming too much risk. With the opening of each of our business lines, we think we’ve reinvented a segment of those markets in our own unique way. Whether through the location, size or design of our projects, or a combination of these elements, we try and swim upstream, leading the way into new territory. This approach has proven successful, allowing us to build a $7.8 billion portfolio that includes assets in student, senior living, multifamily, industrial, office and hospitality. This includes student and residential developments in South America and Europe.

What are your predictions for the student housing sector?

Smith: We will continue to see a leveling-off of new supply due to sector consolidation, along with rising land and construction costs. This will allow for attractive rent growth opportunities for those with the best located properties and the best product offering. I would also expect to see a continued influx of institutional capital—both domestic and foreign—entering the sector due to its recession-resilient qualities and stable, income-producing assets.

Space allocated to parking will continue to be reevaluated in pedestrian-to-campus locations and developers will contemplate using the space more efficiently as a service amenity, retail and/or additional apartments. Finally, smart home technology will continue to become more widely integrated into student residences. We’re already seeing this in the form of keyless entry and programmable settings for lighting, sound and temperature.