Investing in Student Housing Amid Market Volatility
Township Capital’s Matthew Gorelik discusses the challenges of student housing investments in the COVID-19 era.
According to a recent study by Trepp, when it comes to comparing student housing with the multifamily sector, the student housing market has consistently underperformed as a result of overbuilding and high competition. And now, due to the COVID-19 crisis, things have only gotten worse. The market is expected to undergo further distress in upcoming months as lease dates near expiration, while the future performance of the sector depends directly on whether schools are able to reopen for the 2020-2021 academic year.
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With a portfolio spanning the student housing, senior living, multifamily and industrial sectors, Los Angeles-based Township Capital is a co-general partner (co-GP) real estate investment firm founded by CEO Matthew Gorelik in 2014. In the interview below, Gorelik shares his insights on investing in student housing and what to expect going forward amid the ongoing economic disruption.
What are some of Township Capital’s core investment strategies?
Gorelik: We like operators who have experience developing and acquiring student housing near large, state-funded universities with demonstrated enrollment growth over multiple years. We like properties that are very close to campus and believe that location is critical to telling the right student housing story.
Student housing developers traditionally engage a limited partner and lender to capitalize on their projects. However, we see new interest in passive, co-GP equity as developers search for more attractive deal economics. We are focused on an institutional approach to co-GP allocation and have raised closed-end, discretionary funds from which we commit $500,000 to $2 million per project.
Tell us more about your partnership with Landmark Properties and Goldman Sachs for the $360 million student housing development and acquisition deal in Austin.
Gorelik: We have a strong relationship with Landmark Properties and are very excited to be developing The Standard Austin and acquiring the University Towers. Both are three blocks from the main campus at The University of Texas at Austin. The Standard will offer 1,005 beds across 343,000 square feet with an additional 29,000 square feet of amenity and 5,400 square feet of retail space. The University Towers is being redeveloped as The Mark at Austin and will offer 940 beds across 325,271 square feet with an additional 28,193 square feet of amenity and 5,700 square feet of retail space. The Standard is expected to deliver on time for the 2021-2022 academic year.
What are the biggest challenges when investing in student housing today?
Gorelik: Many lenders are hesitant to close acquisition or construction financing due to broader market uncertainty. We still see opportunity for student housing investment. Preleasing across our student housing projects has been strong for the 2020-2021 academic year and will likely continue, as universities commit to opening for the semester.
How is your company adjusting to current circumstances and what are your thoughts on the industry going forward?
Gorelik: We are focused on less dense unit configurations to support social distancing. We are also focused on additional cleaning protocols and health-related offerings in our existing projects.
We believe that student housing remains a strong investment and that many universities will be open by the 2020-2021 academic year. Investors will likely be more conscious of their reserves and the ability to call additional equity going forward.