In the Limelight: Student Housing Investments

Kyle Bach, CEO, The Annex Group. Image courtesy of The Annex Group

With interest rates falling again, investors turn to student housing properties. A recent Savills report found that a record $10.8 billion was invested into student housing in the U.S. last year. Overall, the market remains strong, with few properties having empty beds.

However, the high cost of construction and the extensive labor shortage have had a significant impact on the market. “The large volume of construction currently underway in the student housing arena, and in larger respects the entire multifamily construction field, have also driven costs up,” Tom Tomaszewski, COO & president of construction for The Annex Group, told Multi-Housing News.

In an interview, Tomaszewski and CEO Kyle Bach share their thoughts on how the student housing market is performing, highlighting what impacts it and pointing out their predictions for the remainder of the year.

How has the student housing construction landscape changed over the past several years?

Tomaszewski: Over the past few years, there have been several factors affecting changes in student housing construction. The two largest issues with major effects being the skyrocketing cost of construction as well as challenges to find qualified subcontract labor. The cost of construction has increased over the last few years due to material increases, labor increases and ever more have been increased by ongoing tariff disputes.

In addition to increasing costs, the qualified sub pool has continued to shrink. Finding good qualified subcontractors has been very difficult lately due to the high volume of multifamily construction currently underway in most areas of the country. Many in the industry are still feeling the consequences of losing a large portion of the trade workforce during the last recession when electricians, carpenters and more left their field to go into completely different industries. All of these things have made it increasingly challenging to get student housing developed and built. 

Tell us about major challenges developers come across in the student housing industry. 

Bach: One of our most important criteria for a new development is walkability to campus, which is also a challenge at times, as many university towns are fully developed with little to no room for new construction near campus. Finding in-fill sites adjacent to college campuses can be extremely challenging and time intensive, but the pay-off is well worth the work.

Could you single out one trend that is gaining popularity in the student housing market? 

Bach: One trend gaining popularity in the student housing market right now is on-campus public-private partnerships (P3) for housing. This allows schools to move more efficiently and cost effectively to provide new on-campus housing without having to get funding approval through the state. It also allows an additional revenue stream to the college or university to put towards another initiatives on campus such as academics buildings.

What types of amenities are now favored in student housing developments?

Bach: The student housing industry is seeing a rise in education-focused amenities, including technology centers with computers and printers, quiet-study rooms, free cable and internet and more. Residents are also focused on convenience and their ability to save time and money wherever possible. That means providing things like fully furnished rooms with in-unit washer/dryer, individual housing contracts that include the cost of utilities, a location with a close proximity to campus and access to public or university transportation.

How has technology impacted the student housing market so far?

Bach: Technology evolves so quickly that the most important constant is simply having great internet speed. Students will bring their own devices—an average of five per person—and the ability to handle that demand is most important. The latest and greatest technology of today will likely already appear highly antiquated in two years. To combat this issue, we’re constantly evaluating new technologies and weighing their impact and usefulness against the cost to implement and several other factors.

Please tell us a few details about your Ruston, La., project. 

Bach: The Annex of Ruston is our latest purpose-built, multifamily housing development located in Ruston, La. The $18 million, 118-unit structure will serve as one of the first off-campus housing properties financed using an opportunity zone investment structure.

What can we expect from the student housing market in the year ahead?What are your plans?

Bach: In 2019, the student housing market can expect more deals funded with the use of opportunity zone funds, as most college towns are located within a zone. This is beneficial for students, as many are recognized as “no-income” residents.

The Annex Group plans to introduce multiple new student, workforce and affordable housing developments across the U.S. We not only plan on expanding our development offerings, but we are also hoping to grow our team, creating new jobs in the industry and in our home state of Indiana.