Coping With Multiplying Expenses in Student Housing
- Sep 25, 2019
Fueled by a tight labor market and accelerating costs of construction, materials and land, competition between construction firms to recruit and retain employees is getting fiercer. How does a company deal with the lack of skilled workers and overall rising expenses in order to be able to deliver projects on time?
Multi-Housing News asked Landmark Properties CEO Wes Rogers to share some tips about how to cope with construction challenges given that his company has been very busy. After breaking ground on 11 student housing properties last summer, Landmark started work on four others recently. Moreover, the company has financing in place for three more projects. Rogers discusses the company’s ongoing and future projects and also touches on his company’s plans.
What is the status of the projects you broke ground on last year?
Rogers: Three of those projects—The Station at Raleigh (North Carolina State University), The Retreat at Denton (University of North Texas) and The Retreat at Illinois (University of Illinois)—were completed this year and residents have already moved in. The remaining properties, all urban infill and mixed-use developments, are under construction.
How has the growing shortage of workers affected Landmark Properties?
Rogers: This has been and continues to be one of the industry’s biggest challenges—particularly for the four- and five-story wood frame projects. The concrete projects and lower-density wood frame projects still deal with this challenge, but to a lesser degree. Wood is much more labor intensive, so having a consistent stream of framers on your site is critical for success in these projects.
At Landmark, we have our own general contractor, so we self-perform most of our projects. Having the in-house construction team enables us to better manage our subcontractors to ensure we have enough people on the ground to get the job done while also managing costs. We’ve also been more conservative with our timelines, adding several months of cushion into our schedules. Finally, we’re spending more time on the upfront design and buying out our projects much earlier in the process.
From a construction standpoint, developing student housing properties implies some risks compared to conventional apartment spaces. How do you manage those risks?
Rogers: We put a lot of thought and planning into our developments and our process begins long before the first shovel meets the dirt. In our 15-year history, we have a great track record of delivering high quality projects on time and on budget—but we’re always planning one step ahead in case issues do arise.
While we are bullish on the long-term fundamentals of our industry, there are two uncontrollable risks to the sector in general: the proliferation of online education and the availability of student debt. We feel confident that our general strategy and processes will help keep us uniquely insulated from these threats.
As we head into the 2019-2020 school year, what are the top three trends in the student housing business?
- Elevated costs. Cost of labor, materials and land all continue to rise, but many markets with strong demand don’t have rents to support the increased cost of new construction.
- Greater density. The best sites are getting smaller and we’re having to go more vertical.
- More efficient units and amenities. With elevated costs, we’re having to be even more thoughtful about design and efficiency. The result is slightly smaller units, more double occupancy, where it’s supportable, and more efficient amenity areas.
What types of amenities for student housing developments are now trending?
Rogers: Swimming pools, fitness centers and outdoor space continue to be popular among residents at our developments. In recent years, we’ve seen increased demand for more collaborative group study areas and private study rooms. We’ve been very intentional about adding more study space in our developments, including cafe-style lounges, in addition to group and private rooms designated specifically for academic studies.
What role does technology play across Landmark Properties’ projects?
Rogers: Technology plays a huge role across our developments. Today, our residents rely on fast internet speeds for a lot of their daily activities—from homework assignments and class projects, to streaming movies and shows and playing video games. So, having fast internet speeds and reliable connectivity are critical. Throughout the community, we rely on technology to help keep our developments safer as well, including limited access entry, video surveillance monitoring and more.
Technology is critical for us and is used by our residents and teams every day. Through our quarterly resident surveys, we have found that internet is the second most important amenity for our residents. We feel so strongly about its importance that we created our own in-house technology company several years ago. At the time, we felt like none of the third-party providers were doing a great job of meeting our residents’ demands at an affordable cost, so we decided to do it ourselves. We not only act as the cable TV provider, but we also provide managed internet directly to our residents. Additionally, we’re now adding “smart home” features to many of our new properties.
Please tell us a few details about your development strategy. How do you choose your markets?
Rogers: We have a very thorough evaluation process for selecting our markets, which we’ve refined throughout our 15-year history. Generally, we focus on publicly chartered state institutions and a select few private universities with enrollments of 15,000 or more. Our analysis emphasizes the strength of the university as well as the strength of the current and forecasted supply and demand for off-campus housing.
What can we expect from the student housing market in the year ahead? What are your plans?
Rogers: For Landmark, we just delivered nine student housing projects over the course of the past two months. Combined, these properties represent close to $1 billion in value and more than 6,150 beds. Earlier this year, we announced we were breaking ground on seven other new properties, bringing us over $2.9 billion in assets under construction. Despite the challenges with costs, we are still seeing many compelling opportunities that allow us to meet the needs for residents at colleges and universities across the country.
We also remain active on the acquisitions side. We recently purchased two assets and currently have six more under contract. We went from purchasing less than $100 million in existing assets last year to potentially over $500 million this year.