Not Your Father’s Student Housing: Banks Looking to Lend on Student Housing

Providence, R.I--Not so long ago, banks viewed the prospect of financing the development of student housing with skepticism, if not out-and-out resistance. No more. Banks today have done a complete 180 on the idea of financing student housing. And there's a good reason for that.

Providence, R.I–Not so long ago, banks viewed the prospect of financing the development of student housing with skepticism, if not out-and-out resistance.

The reason: they assumed they were underwriting John Belushi’s Animal House, observes Bob Gilbane, president of Providence, R.I.-based Gilbane Development Co., a major developer of student and other types of housing.

No more. Banks today have done a complete 180 on the idea of financing student housing. And there’s a good reason for that.

“Student housing built today is purpose-built housing,” Gilbane tells MHN.  “It’s built with all the contemporary amenities, from blazing-fast Internet to private baths, in-unit washer-dryers, high-definition TVs, fully applianced kitchens and, in the public areas, group study rooms, fitness clubs with high-end equipment, cybercafés, game rooms, business centers and courtyards for grilling.”

For about the last year and a half, lenders have viewed purpose-built student housing as a preferred asset class, Gilbane says. “It’s no longer the old barracks; it’s upscale housing,” he observes.

“Many students and parents expect the same comforts they have in their own homes in this generation of student housing. But you better have a great location and a great, amenity-rich product … Lenders are realizing if you have the right location and product, relatively close to a university with unmet need for student housing, it’s fairly recession-proof.”

Agreeing there’s a new thaw in lending for student housing is Henry Morton, president of Orlando-based Campus Suites. During the depths of the recent Great Recession, there wasn’t much permanent financing readily available.  As a result, banks were concerned about being repaid if they were to provide construction financing for a student housing development, he says.

Several factors have helped alter the environment in the last two years. First, the hard costs of development have fallen in many communities. Second, some counties and cities are providing incentives to developers to help spur new development. That’s helping make development more economically feasible. Third, rent levels have been maintained in many communities, Morton says.

“So all these things combined, your lending metrics that were out of whack prior to the recession are now back in greater alignment than before,” he adds. “Also, pre-recession, there was movement away from campus in the quest for more development sites and with the thought, if you build it, they will come.

“Now they’re moving closer to campus because they’d rather be paying more for a site and reducing their overall risk. Now that student housing is coming back closer to campus, everyone understands the development better.”

Having access to debt is vitally important for developers of student housing to move forward, Morton says. “Prudent lending is always a good thing for any industry, he adds. “Too easy or too hard makes business challenging.

Of course, not just anyone should be entertaining the notion of student housing development, Gilbane adds. “You have to understand how to lease this, and how to attract the best and brightest kids to live in the facility, because once you do, the rest will follow,” he says.

“This is a good time for purpose-built student housing from the right developer. It’s a good product. And in developing these communities, you’re achieving a good social purpose.”

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