As students’ demands grow and diversify, universities have finally understood that they need market experts to stay in the game. EdR has been in the business for more than half a century and is developing some of the country’s biggest on-campus projects. Randy Churchey, chairman & CEO of EdR, spoke to Multi-Housing News about market trends, students’ demands and how to stay competitive.
What is the outlook for EdR’s activities during the next couple of years?
In the last five years, we have developed on- and off-campus properties, and we’ve averaged something like $250 million in deliveries each year. That is what we foresee going forward. More on- and off-campus developments, probably averaging in the $250 million- to $300 million-a-year range.
We also plan to be selectively acquisitive, as we’ve been over the past four to five years. There are still a number of good products being developed by others, mainly merchant developers, that will give rise to us possibly buying other properties.
Our expectations are to grow our portfolio meaningfully over the next four or five years.
In the current climate for student housing, do you expect that the focus on any of the company’s main business areas will change significantly, whether it’s development, acquisition or management?
I really don’t expect so. This management team has been in place at EdR for almost seven years. We have refined what we do and what we do well. Our main focus has been on our own campus developments, using our equity under our “ONE Plan” program. What universities look for, when it comes to capital providers and on-campus developers, is exactly what our core competencies and strengths are. We are large, we have great access to capital, we’ve been building and owning on campus for over 52 years, and we’ve become a reliable partner for universities.
Our expectation is that a lot of our focus will be on on-campus development. The greatest example is what we’re doing with the University of Kentucky. We’ve opened 4,800 new beds on campus, and that number will be 6,800 by the end of 2017, to where we’ve completely transformed the campus. That is the model we would like to use going forward, and many universities are starting to embrace that model.
What can you tell us about EdR’s priorities for the next few years when it comes to your service lines, whether it’s ground-up development, renovation, investment, management or finance?
It’s really all about the development side. We had a same-store revenue growth of about 4 percent and a same-store net operating income growth of about 4 percent. So we’ve got great internal growth, which shows the steadiness in growth of the business itself, our good management team and our very, very good properties. We plan to continue the process we’ve had over the last few years, where it’s mainly ground-up development, with some acquisitions. The great thing about ground-up development is you can build a property you like with exactly what you want in it, what we think the students want to have.
Our growth will continue to be mainly ground-up development, and more on-campus developments versus off-campus developments.
You talked about the project EdR is developing with the University of Kentucky. Have you launched other initiatives during the past year or so?
We spend a lot of time providing information to universities, for them to see the benefits of outsourcing the ownership of their own on-campus housing. The University of Kentucky has chosen to outsource the entire university. Other universities have allowed us to develop and own one or two or three buildings on campus. What we’re seeing is the volume of those opportunities are growing exponentially and have been growing for the last few years. And we expect that for the future, as well.
All the universities have the same difficulties. They want to build on-campus, new product that maybe is not student housing but is a student union building or the new Arts & Sciences Building. By outsourcing the equity component of on-campus housing to us, it frees their resources to be able to do these other things that are vitally important for the university. I don’t see that changing. I think we’re going to have more and more opportunities to build on campus.
Do you find that your university partners’ priorities are evolving significantly as they respond to their students’ needs? Or do the schools’ main concerns seem to be largely the same as they were five or 10 years ago?
I think they have evolved. The mission of universities is to educate their students, and they’ve moved along a path of trying to move out of things that are not critical to that particular mission. For instance, years ago, they outsourced their bookstores, and then, a few years back, many universities outsourced the food service, believing, in both cases, that a private group that does that day in, day out across the U.S. can do a better job. That is where the evolution is going on housing. The universities are trying to get out of the real estate business and continue to focus on their core competency, which is educating students.
As a university continues to move non-core critical missions to third-party providers like us, that do it every day, then the university can better focus on educating the students. This trend will continue for the near term.
What are likely to be the most influential factors in the student housing sector during the next few years?
Like all real estate, it’s always supply and demand. Fortunately, today the enrollment increases at universities are matching the new supply increases for student housing. That’s a very good macro environment for student housing. That’s the first thing.
When you do surveys of students, in order, here is what they want: First, they want privacy. Second, they want Internet. Third, they want proximity to campus. That’s what we’re trying to build up. All of the assets that we build or that we buy always meet those three student needs. What’s happening across the USA is that the age of on-campus dormitories at universities is relatively high. In many cases, the dorms do not have these privacy-type units. That’s why universities are looking at upgrading their current stock of dormitories.
However, in a lot of cases, the upgrades cost too much, so it’s a lot better to build new ones. That’s what we’re seeing in the marketplace and that is what we continue to deliver in all of our new developments (to fulfill) student needs.
Besides privacy, Internet and proximity to campus, what other amenities do student housing developments need in order to be competitive?
It really depends on the location. On campus, you actually have the best real estate and the best location, so the number of amenities you need to have in order to be competitive diminishes. Typically, on-campus assets do not have stuff like pools. What they do have and what is critical are the common areas inside and outside the building, where students can congregate. That is the primary amenity that you have to have for on-campus assets.
When you get to off-campus assets, the location is not quite as good, so you need to have a higher level of amenities. That’s typically where you have pools, sand volleyball courts and so forth. What we try to have in all our communities, both on and off campus, are these gathering areas where people can study together, have coffee together. Students want privacy but also a quick ability to connect with fellow students.