Special Report: Buy, Sell or Hold? Student Housing Experts Share Their Strategies
Student housing experts weigh in on acquisition best practices.
By Mallory Bulman, Associate Editor
Scottsdale, Ariz.—Deciding whether to buy, sell, or hold a property is all about strategy, and it can be especially tricky with the unconventional schedule that the student housing market follows. No one knows this more than the panelists featured at the recent National Multifamily Housing Council’s Student Housing Conference and Exhibition, who are all veterans in the student housing sector.
How important is your designated timeline?
“The most important thing to me is the strategy and the investment…If I achieve that strategy despite the time I originally thought I was going to achieve it, it’s time for me to exit,” said Irene Moroko, senior vice president at Blue Vista Capital Management. She added that the only exception to this viewpoint would be if the capital markets remain unchanged, and there is a possibility of achieving a greater value. “The closer you are to your exit strategy,” she said, “the higher your return is going to be.”
Do buyers expect capital improvements?
While some may think all buyers are looking for core assets right off the bat, the experts say this isn’t always so. “I’ve never seen a situation where the buyer was really happy with the seller’s renovations, and they usually prefer to do it themselves. It’s easier to sell the dream [by saying] ‘If you fix this and fix that, you can raise the rents,’” said Armand Charbonneau, senior managing director at ARA. Moroko agrees with this theory, even adding that sometimes exiting your asset without improving it can position it as a value-add play for the next buyer.
“If I’m executing a strategy and I know that my exit is a little bit of a value-add play to the next buyer, then I’m going to leave meat on the bone for that buyer,” she said. “They’re going to want to take that asset and do something to add value; I’m going to leave something for them to do there. I’m not going to paint the property, or I’m not going to repair something.”
When is the best time to sell?
With a tight schedule that operates around college semesters and vacations, figuring out the optimal time to sell can be problematic. Scott Barton, vice president of real estate acquisitions at EdR, thinks there’s no better time than the present. “I definitely think the most risk-neutral time to look at a sale is now. The lease-up season is completed, and the buyer is not having to be out there on a limb, wondering if they’re going to finish lease-up or [need to implement] a price reduction in order to compensate them for the extra risk,” he advised. “If you wait too long, this year’s lease-up will be yesterday’s news, and people will have moved on.”
When is the best time to renovate?
With students moving in and out between semesters, and a limited timeframe during the summer, many wonder when to make improvements to their properties. According to Moroko, it’s the nature of the beast. “Student housing has that inherent challenge. You don’t have the benefit of multifamily where you can stage your renovation plan,” she said. “So we have a couple benefits in student housing – you can do things during term, you can do things during the summer or during winter break [when] you usually have a good four week period.”
Should the arrival of new product on the market affect your strategy?
It can be hard not to sweat it over a competitor building a new property in your market, but Jaclyn Fitts, national director of student housing at CBRE, says that the addition of new product is part of the real estate life cycle, and it can even be beneficial. “In some of the markets I’ve seen, some of the older product actually benefitted from the standpoint of new supply coming in at a much higher rental point, and so the rents come up on the older product just because they’re still well below the new, but now they look so inexpensive even at a higher rental point than where they were before,” she pointed out.
As Barton put it, “Today’s core property is tomorrow’s value property for someone else.”