Student Housing Predictions: More Institutional, Foreign Investors

Ryan Lang, Vice Chairman, Newmark Knight Frank. Image courtesy of NKF

Investment in student housing property maintained at healthy levels throughout the year. The asset class is actually becoming increasingly global. Cross-border capital poured into student
markets around the world accounted for 40 percent of investment into student accommodation over the last three years, a Newmark Knight Frank 2019 report on the sector shows.

At the same time, the amount of foreign capital infused in the U.S. student housing market rose this year and the trend is expected to continue, according to NKF’s Vice Chairman Ryan Lang: “Our expectation is that foreign capital will continue to sustain elevated levels of market share given the influx of new Korean and Singaporean investors.” 

Specializing in the sale of student housing assets, Newmark Knight Frank Vice Chairman Ryan Lang has more than ten years of experience in investment sales and advisory services for this property sector. Lang, who is also the head of the company’s student housing division, has closed more than $8 billion in institutional real estate transactions and has represented major investors, including Brookfield Asset Management, Heitman and American Campus Communities. Multi-Housing News reached out to Lang to discuss his outlook for student housing in the year ahead.

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This year, NKF closed transactions totaling almost 2,000 beds in four weeks with equity sources from three different countries. How is this illustrative of student housing investment trends?

Lang: The sector has become a diversified safe haven for domestic and foreign capital while continuing to institutionalize at a fast pace. Foreign capital now represents approximately 20 percent of all student housing transactions that happen in the U.S. and we anticipate new equity entrants to be prevalent in 2020 and beyond.

Do you expect the volume of foreign investment in student housing to increase or decrease going forward? 

Lang: Our expectation is that foreign capital will continue to sustain elevated levels of market share given the influx of new Korean and Singaporean investors. We have consistently been transacting with groups based out of the Asia-Pacific and Middle East region and 2019 has brought additional foreign groups to the forefront from entirely new regions that are looking for entirely different investment criteria. It is an exciting time in the sector that appears to have longevity over the coming years. 

What can you tell us about financing student housing acquisitions?

Lang: This is one of the more interesting and important dynamics of our business because so much remains to be seen. Quite simply, it is apparent that like many institutional investors, the criteria for executing on any given transaction is more selective. That being said life (insurance companies), CMBS and agency (lenders) do remain active in the space. 

What are the hottest markets for student housing investment?

Lang: Power 5 conference universities with big football programs and coastal markets are in highest demand right now. The coastal markets are again driven by an influx of foreign capital interest. 

Rising construction costs and labor shortages were among the industry’s top challenges in 2019. What issues will be impacting the student housing market in 2020? 

Lang: The biggest remaining challenge ahead is the influx of new supply that has entered several major, Tier 1 universities across the country. While it is easy to paint broadly on the sector, the industry remains fragmented and no two markets are alike. For instance, one major market could be seeing 3,000 beds that could take two academic years to absorb, while another similar market could have a massive shortage of housing throughout. It remains a sector where expertise, knowledge of specific submarkets and operational efficiencies are paramount. 

Will we see the same amount of interest in student housing next year? 

Lang: While we have seen a slowdown in 2019 over 2018, much of this is due to several larger portfolio transactions. One-off and “mini-portfolio” transactions remain prevalent and 2020 appears to be headed in the same direction. There is an abundance of equity available coupled with incredibly accretive debt financing options. Unless one of these factors changes, we anticipate a busy 2020.

Tell us about the new players in the sector. 

Lang: Private capital has consistently led market share for student housing acquisitions over the past decade. This remains true. However, the aforementioned foreign and institutional capital groups have a chance to drive transaction volume to new heights with several full discretionary funds and the low cost of capital.

What are your expectations from 2020 in terms of student housing investment?

Lang: We expect student investment to be on par with 2019, if not better, particularly if foreign investment continues to be a driving force in the industry. The capital markets environment, foreign investment and the degree to which institutional capital remains selective will determine the fate of the 2020 volume.