Pushing Forward With Vertical Student Housing Projects
- Mar 13, 2020
With developable land becoming scarcer and scarcer, and land prices skyrocketing in Florida, student housing developers’ only viable option is to go vertical, according to Colliers International Associate Virgilio Fernandez. Miami’s student housing market continues to attract both investors and developers, as the metro’s top universities—The University of Miami and Florida International University—keep drawing students and staff from all over the country and around the world. In an interview with Multi-Housing News, Fernandez shared details about the most coveted submarkets in the metro and explained why an increasing number of investors are showing interest in Miami’s student housing sector.
What are some of the strengths of the metro’s student housing market? What about the challenges?
Fernandez: Miami is home to many colleges and universities which include Florida’s largest public university, FIU. Enrollment in Miami’s universities and colleges is increasing and developers are able to capture the strong rents associated with co-living and upscale housing.
The main challenges are scarcity of land and land prices for the lots that are available. Due to all this demand, prices have hiked up recently and it’s hard to justify paying so much for the land. Additionally, there is a lot of supply set to be delivered and there are concerns of oversupply in some markets.
What can you tell us about student housing investment in Miami?
Fernandez: What students want in terms of housing has changed in the past few years. Students like being close to their university, having tech amenities and co-living/coworking concepts. There is a demand for upscale housing near FIU’s main campus and the University of Miami as students seem to be flocking away from dorms and older, functionally obsolete buildings. Moreover, these new quality housing projects may tap into some of the neighboring markets, such as Sweetwater, which lack new housing as well.
Currently, in the Florida International University submarket, 55 percent of student housing units are Class C and only 11 percent are Class A—this is changing very quickly. After the completion of the University Bridge Residences, Class A and C units will become balanced. Class C will account for 38 percent and Class A will account for 38 percent.
For example, I, along with my colleagues Gerard Yetming, Mitash Kripalani and Julian Zuniga, recently brokered the sale of a 17-unit, 24,451-square-foot multifamily development near the FIU campus in Sweetwater. We sold the property to Adam American Realty, a New York-based multifamily developer which plans to build a high-rise upscale student tower. We are also currently marketing a 1.9-acre student housing development site on the northside of FIU’s main campus. The property currently features 48 two-bedroom and one-bathroom units. Half of the site is zoned University City District (UC), which permits a density of 210 units or a max of 840 beds per acre. The other half is zoned RM-24 and may be upzoned in the future to UC, as other lots nearby have.
Why are investors attracted to Sweetwater and what other submarkets will be most sought after this year?
Fernandez: Investors are attracted to the Sweetwater market because of its proximity to FIU and its favorable zoning for vertical student housing development. Moreover, the strong rental fundamentals make developing such projects profitable. As FIU’s main campus and engineering center have continued to grow, so has demand for upscale student housing. With the university expected to add 1,000+ students annually, the current pipeline will not be adequate for the demand for student housing in the market. The University of Miami submarket will be sought out due to the same reasons, coupled with a scarcity of land.
Tell us about the types of investors that are showing interest in the sector now.
Fernandez: National student housing groups that have never entered the Miami market are now considering it because the attractive rents and enrollment figures can justify developing such projects. Aside from that, local private developers that build market-rate rentals and condos have begun to show interest in this sector for the same reasons.
According to a recent Moody’s report on privatized student housing bond financings, more than 40 percent of P3 projects reported lease-up challenges last fall. Tell us your thoughts on the matter.
Fernandez: P3 bond-financed student housing projects may be experiencing lease-up challenges for various reasons, most of which revolve around the university and the unit mix of the project. Using a broad-brush overview, occupancy levels may decline in some projects due to students of a particular university transitioning from in-person to online and/or commuting to school rather than living close by. Aside from that, I see a trend in vacancies associated with the four-, five- and six-bedroom units rather than the studios, one-, two- and three-bedroom units. It seems like students like the co-living concept, but living with five other students may be too much.
What does the future hold for student housing investment in Miami?
Fernandez: Amid the growth of Miami universities and colleges, demand for student housing will continue, as well as strong rental fundamentals, making development profitable. The current pipeline will not be adequate for the demand for student housing and, therefore, new projects will be built and older multifamily buildings will be adapted to student housing.