Student Housing Growth

Market standards and data are needed to attract more diverse capital

By Rich Martinez, Freddie Mac Multifamily

The student housing finance industry has grown in the last two decades. Student housing now accommodates 7 percent of the U.S. population and the demographic trends are strong in this sector. More young people attend college than ever before—more than 20 million students are enrolled in college today, most of them attending classes full-time. Female and foreign students are fueling growth in this market. Additionally, more than two-thirds of high school graduates attend college.

The student housing market sector has gone from utilitarian dorms to housing with fitness centers, meeting rooms and theaters. But the industry is still faced with the challenge of getting capital flowing so it can be the market segment that investors look at first. All sectors of the commercial/multifamily real estate markets are lacking adequate capital in today’s market. “The Great Recession” has impacted the flow of debt and equity capital for new construction, rehabilitation and permanent financing. Better economic footing, as well as confidence and job growth, will certainly help, as will the banks repairing their balance sheets.

However, to attract more capital, work needs to be done to develop more standards and have market data for off-campus housing. For example, what exactly is a “quad” or “purpose-built” housing?

Freddie Mac has a definition,  a lender has a different definition and another investor has a slightly different one. Developing a common understanding of these and other terms is a good first step for the industry—that’s why the National Multi Housing Council is working on a student housing data dictionary. Freddie Mac is an active participant in this effort.

A second need is market data. It’s hard to size the student housing segment.  How much capital is needed? Where is it needed the most? What kind of housing structures are being built—and how far away from the campus? Are there more rentals by-the-bed or by-the-unit?

That’s a lot of questions to make a simple point: We need more—and certainly better—data.

The development and implementation of standards has been executed in other real estate sectors, and the same can be done for student housing. Seniors housing went through this process and came up with standards. The result is that industry players now have a common understanding of terms such as independent living, assisted care, mental care, skilled medical care and continuing care communities. There’s also plenty of data to analyze.

Because of this work, seniors housing has become an established, distinct segment within the multifamily market. Student housing will benefit by following this same process.  If it does, expect more and diverse forms of capital to come into the market and support growth.

Freddie Mac is already supportive of the student housing market, with staff dedicated to financing off-campus housing. In 2009, Freddie Mac expanded its product offerings to include various structured finance executions. It closed on a floating rate credit facility collateralized by a pool of cross-collateralized properties. The company offers conventional mortgage loans, as well as fixed-rate Crossed Facilities and Non-Crossed Flow Facilities. These expanded executions bring more flexibility and liquidity to the market. Last year, Freddie Mac purchased a record  $775 million in student housing mortgages, compared to $580 million in 2008.

Rich Martinez is managing regional director for Freddie Mac Multifamily. He is responsible for student lending sales nationwide for Freddie Mac.

The views expressed in this Perspective are the opinion of the contributor.

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