Commercial Real Estate, Capital, Insurance, Leasing & Management

CoStar News: Investors Pour Into Student Housing Deals

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Return to In-Person Learning Boosted Demand in Recent Months Even as Enrollment Declines, Fannie Mae Says

The return of most college students to in-person learning this fall has given a boost to student housing, according to a new analysis from Fannie Mae, the government-sponsored mortgage giant.

Improving fundamentals have brought investors back en masse, and while college enrollments have declined for eight straight years, buyers don’t seem to be worried. A three-month surge in buying that began around the time classes started has reached historic highs, according to data compiled by CoStar.

The pandemic turbulence experienced throughout 2020 for student housing could be in the rearview mirror, Fannie Mae said in its analysis this month. Returns were shown to be performing extremely well and even exceeding pre-pandemic highs.

As of September, occupancy rates tracked by Fannie Mae were about 94.1%, compared to September 2020’s occupancy rate of 88.2% and September 2019’s rate of 92.8%. Occupancies are considered full at 90%. As a result of COVID-19 vaccination requirements, relaxed enrollment regulations and pent-up demand, fall 2021 occupancy rates are at record-high levels.

“This past summer leading to the current fall semester, we saw a massive rebound and an early push from the residents to get a place established,” Darron Kattan, managing director and multifamily brokerage specialist with Franklin Street, told CoStar News in an email. “I am sure a part of that was the desire to get out of the house, but also the lack of quality options in a variety of markets relative to the demand, and students wanted to lock in their first option.”

Kattan brokered the September sale of the 570-bed College Town at the University of South Florida in Tampa, Florida, for $43.2 million.

Fannie Mae’s analysis was borne out by CoStar sales data. More student housing is selling significantly faster, and at much higher values and lower capitalization rates, according to the data.

CoStar data shows $2.1 billion in student housing properties sold from Sept. 1 through Nov. 29, versus $850 million for the same period last year. The Harrison Street portfolio sales will bring the total to $4 billion. That is the highest three-month total of student housing sales ever, according to data compiled by CoStar.

Deals transacted in that period this year have been acquired at an average capitalization rate of 5.2%, versus a year-earlier projected annual return of 7.3%. A lower rate implies less risk to the buyer.

The average sale price this year of $298,127 compares to $201,168 last year. And, acquired properties were only on the market an average of 3.8 months this year, versus 7.5 months in 2020.

Read more here from CoStar News

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