Cornell Real Estate Review

Volume 17 Article 19

April 2019

The U.S. Student Housing Market: Overlooked

Opportunities
Joseph A. McFalls
Cornell University

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The U.S. Student Housing Market: Overlooked Opportunities
Abstract
Student housing has emerged in recent years as one of the most in-demand asset classes in commercial real
estate. Investors, both domestic and international, have been attracted to U.S. student housing projects for
many reasons, including their steady yields and reliable returns during all market cycles (The Economist,
2018). As a result, investment in and development of student housing has increased dramatically over the past
few years (Brass, 2018). Even with this increased focus on the sector, opportunities still remain in the student
housing industry, particularly for investors and developers with differentiated projects. This paper will
examine the current state of the U.S. student housing market and suggest four overlooked opportunities in
this market that could provide investors and developers with an edge in the increasingly competitive and
crowded environment.

Keywords
Baker, Cornell, Real Estate, Greystar, Toll Brothers, International Student Enrollment, National Real Estate
Investor, Temple University, Florida Institute of Technology, Illinois, Student Housing Institute of
Technology, Boston University, Philadelphia, The Edge Student Village, Goldrick-Rab, Richardson, Schneider,
Hernandez, & Cady, percent, and New York University

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 The U.S. Student Housing Market:
Overlooked Opportunities

Author: Joseph A. McFalls

Joe McFalls is a Master’s candidate

in the Baker Program in Real Estate at
Cornell University’s SC Johnson College
of Business. Prior to attending Cornell,
Joe served as real estate counsel at Toll
Brothers, Inc. and as an associate in the
real estate department at Blank Rome
LLP. A native of suburban Philadelphia,
Joe is a graduate of the University of
Pennsylvania and the Villanova University
Charles Widger School of Law.

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INTRODUCTION

Student housing has emerged in recent years as one of the most in-demand asset classes in commercial
real estate. Investors, both domestic and international, have been attracted to U.S. student housing
projects for many reasons, including their steady yields and reliable returns during all market cycles
(The Economist, 2018). As a result, investment in and development of student housing has increased
dramatically over the past few years (Brass, 2018). Even with this increased focus on the sector,
opportunities still remain in the student housing industry, particularly for investors and developers with
differentiated projects. This paper will examine the current state of the U.S. student housing market and
suggest four overlooked opportunities in this market that could provide investors and developers with
an edge in the increasingly competitive and crowded environment.

U.S. STUDENT HOUSING MARKET The strength of the U.S. student housing market has caught
the attention of international investors. Foreign investment
Student housing has emerged as a new and maturing in U.S. student housing projects has increased over the last
commercial real estate asset class (Hale, 2018). Student few years, amounting to approximately 36 percent of total
housing complexes are rental apartment projects that cater investment in the sector in 2017 and 21 percent in 2016
exclusively to students and are located in close proximity (Fung, 2018). Moreover, in 2016, sovereign wealth funds
to institutions of higher education. Once consolidated into allocated over 15 percent of their total investment dollars to
the multifamily residential asset class, student housing has student housing, an eleven-percentage point increase from
become an attractive investment class in its own right for a their 2011 allocation (The Economist, 2018). At this point
number of reasons. For example, student housing provides in the cycle, both foreign and domestic investors perceive
consistent income, enjoys generally higher yields than student housing to provide a superior risk-return profile
traditional multifamily rentals, and is less sensitive to market while additionally providing further portfolio diversification
cycles as university enrollments remain stable and indeed (Fung, 2018).
often swell during economic downturns (The Economist,
2018). Indeed, as employment opportunities diminish OVERLOOKED OPPORTUNITIES
during a recession, many individuals elect to return to school
to weather the downturn and build their skills. As a result, A number of opportunities in the student housing sector are
while other sectors of the commercial real estate market currently overlooked by many student housing investors
may suffer from diminished demand during a recession, and developers, including a growing demand for (1) student
student housing projects generally do not experience such housing for international students, (2 student housing
reduced demand and may even see increased demand. developments containing additional uses, (3) more robust
student housing options for community colleges, and (4)
Given these fundamentals, investment in U.S. student more affordable student housing options. While some of
housing projects has increased considerably over the past these opportunities are more readily achievable than are
five years. Investors poured a record $9.8 billion into these others, investors and developers would be wise to consider
projects in 2016, which represented a threefold increase these opportunities as they analyze future transactions.
from 2014 (Brass, 2018). Total investment in U.S. student
housing projects did fall slightly to approximately $8 billion A. Increased Enrollment of International Students at
in 2017 (Brass, 2018). However, 2018 is projected to be American Universities
another record-setting year with total investment in these While the number of college-aged Americans is projected to
projects expected to exceed $10 billion (Anderson, The decline or at the very least stagnate over the coming years,
Investment Outlook for Student Housing Remains Stable, international students are attending American colleges and
2018). Given this appetite from investors, developers universities in significant and increasing numbers. During the
have been increasing their production of student housing 2017/2018 academic year, almost 1,100,000 international
with 46,000 new beds available for the Fall 2017 semester students were enrolled at U.S. colleges and universities,
and 42,000 beds expected to be available for the Fall 2018 a one and one-half percent increase from the prior year
semester (Brass, 2018). (International Student Enrollment, 2019). International

75
 students now comprise over five percent of U.S. college able to assist students satisfy one of their biggest needs
enrollment (International Student Enrollment, 2019). The and perhaps biggest stress in making the transition to an
number of forien students studying internationally has international program. Of course, this partnership will only
increased by 40 percent over the past five years alone continue to the extent that the student housing operator is
(The Economist, 2018). China, India, and South Korea are able to provide residents with safe, clean, and fairly priced
the most represented countries of origin for international accommodations.
students studying in the U.S. (Anderson, International
Students Are Major Source of Demand for Student Housing, Such a partnership need not necessarily be formalized
2015). International students enrolled at U.S. colleges and between the housing operator and the university. In fact,
universities are split relatively evenly between graduate and most such partnerships will likely be informal and may consist
undergraduate programs (International Student Enrollment, of the student housing complex’s inclusion in information
2019). provided by the institution to its students. However, there is
an opportunity for student housing operators to further drive
The total number of internationally mobile students is demand through more formal partnerships with institutions.
expected to reach eight million by 2025, a significant It is not uncommon for universities to have preferred
increase from the 4.5 million such students in 2012 and the providers for certain vendors such as athletic apparel or soft
two million such students in 2000 (Anderson, International drinks. Depending on the size of a student housing complex,
Students Are Major Source of Demand for Student Housing, a school’s need for student housing, and the economics
2015). The growth of the global middle class, particularly of a transaction, a student housing operator may explore
in developing countries such as China and India, has a formal partnership with an institution. For example, a
increased the number of students seeking quality higher developer partnered with Temple University in Philadelphia,
education. While American universities compete with Pennsylvania, to develop a 100-unit residential facility for
universities in other parts of the world, particularly Western international students, faculty, and researchers as well as
Europe, the United States remains the top destination for students studying international affairs (Temple University,
international students (Anderson, International Students 2010).1 Referred to as the “Beech International Village”, the
Are Major Source of Demand for Student Housing, 2015). website for this community offers translations in Chinese,
Dutch, and French.
There are several strategies that student housing operators
can employ to attract and retain these growing numbers. Third, a student housing operator can undertake some
First, at a minimum, student housing operators must simple steps to make its community more accommodating
familiarize themselves with the various nationalities that and attractive to international students. For example,
predominate the local college or university. With this creating a platform that allows students to lease units from
knowledge, they can then design a targeted outreach abroad can be beneficial (National Real Estate Investor -
campaign for these students. In many cases, successfully Atlanta, 2016). In addition, to the extent that international
connecting with international students will require substantial students prefer to room with a similarly situated individual,
improvements to a student housing operator’s marketing, operators should provide resources to allow international
leasing, communications, and customer service platforms students to coordinate this process (Anderson, International
and strategies (National Real Estate Investor - Atlanta, Students Are Major Source of Demand for Student Housing,
2016). 2015). Moreover, to ease international students’ transition
to America, operators should ideally have someone on staff
Second, housing operators should work to forge good who can communicate with these students in their native
relationships with their local institution’s international languages and, to the extent that a community serves food,
student affairs office, graduate programs popular with its menu should include some options appealing to them
international students, and firms that assist international (Anderson, International Students Are Major Source of
students in finding suitable housing prior to their arrival on Demand for Student Housing, 2015). Increasing its staff’s
campus (National Real Estate Investor - Atlanta, 2016). multicultural awareness through training is also advisable
These partnerships should prove beneficial for both parties: for a student housing community seeking to attract and
the student housing operator is provided with a continual 1 Due to a campus-wide student housing shortage, this
pipeline of prospective residents while the referrer is community was recently opened to all students (Paige Gross, 2017).

76
retain international students (National 12.0% 1,200,000

Change in International Student Enrollment

Real Estate Investor - Atlanta, 2016). A

International Student Total Enrollment

10.0% 1,000,000
student housing complex that successfully
attracts and retains international students 8.0% 800,000
is likely to attract additional students to
the community (Anderson, International 6.0% 600,000

Students Are Major Source of Demand

4.0% 400,000
for Student Housing, 2015).
2.0% 200,000
It must be cautioned that attracting
international students will not be a 0.0% 0

2007/08

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18
successful strategy for all student
housing complexes as they are not
School Year
uniformly distributed among American
Total International Students Annual % Change
colleges and universities. In addition
to Ivy League universities, international Figure 1: Total number and annual percentage change of international students attending U.S.
students are predominantly attracted to colleges and universities (source: International Student Enrollment. (2019, February 8). Retrieved
from Institute International
Source: of International
Student Education,
Enrollment.Inc.: https://www.iie.org/Research-and-Insights/
(2019, February 8). Retrieved from Institute of
tier-one research universities and world- OpenDoors/Data/International-Students/Enrollment).
International Education, Inc.: https://www.iie.org/Research-and-Insights/Open-
famous schools, particularly those with Doors/Data/International-Students/Enrollment
strong technology programs. Examples of universities incorporate higher risk but higher return property types that
with a large number of enrolled international students can increase their yields (Booty, 2018). Indeed, student
include Florida Institute of Technology (33 percent), Illinois housing complexes with additional uses often have higher
Institute of Technology (30 percent), Boston University (19 rents and trade for higher values than do standalone
percent), and New York University (15 percent) (Anderson, student housing complexes as they more effectively cater
International Students Are Major Source of Demand for to students’ preferences for a combined live, work, and play
Student Housing, 2015). environment and often are situated in locations where the
other uses can thrive (Friedman, 2015).
Global and domestic factors can affect international student
enrollment at U.S. colleges and universities. For example, Two of the most popular uses to combine with student
as a result of the sharp decline in oil prices, the government housing are retail and hospitality (Rosario, 2018). Retail
of Saudi Arabia significantly downsized their study-abroad is a natural complement to a student housing project with
scholarship program, which affects the fourth largest tenants ranging from restaurants and coffee shops to
group of international students attending U.S. colleges
and universities (National Real Estate Investor - Atlanta,
2016). Domestic factors can also suddenly shift and impact
international student enrollment such as the imposition of
a travel ban on certain countries as well as the tightening
of rules on visas for international students studying in the
U.S. (The Economist, 2018). Finally, while the number
of international students studying at U.S. colleges and
universities has increased substantially over the last
decade, the pace of this growth has slowed markedly over
the past two years (International Student Enrollment, 2019).

B. Student Housing as Part of a Mixed-Use Project

Coupling student housing with complementary uses
can create additional value by providing built-in demand Figure 2. Domus in Philadelphia, PA, abutting the campuses of the
University of Pennsylvania and Drexel University, features numerous
from the student residents, satisfying desires for nearby retail tenants on the ground floor, including a Starbucks, Wells Fargo,
services and amenities, and allowing developers to and other stores (source: Google Maps).

77
 pharmacies and convenience stores (Rosario, 2018).2 and unemployment is low (Smith, 2018). If the economy
Accordingly, hotels allow visiting parents, friends, and weakens, enrollment is expected to increase, though shifting
alumni space to stay in proximity to the students and campus demographics portend future challenges in the middle of the
(Rosario, 2018). In addition, student housing projects are next decade (Smith, 2018). Further, two-year colleges have
increasingly incorporating an office component to provide seen their funding allotments decrease significantly over
space for students to interact with the business community the past decade with eight states experiencing declines in
in often creative office spaces (Booty, 2018). This space excess of 30 percent (Smith, 2018). While many of these
can be rented out to student groups or even potentially to a trends are affecting four-year colleges as well, the impact is
nearby university (Booty, 2018). more pronounced on two-year colleges given their smaller
size and budgets. Therefore, student housing developers
While incorporating other uses in a student housing project
should seek high-performing two-year colleges that are
is an increasing trend, it still only amounts to approximately
able to attract students during all market cycles and that
20 to 25 percent of the projects being developed in 2015
have secure funding sources.
(Friedman, 2015). Developers should not automatically
create additional uses in a student housing project and D. Demand for More Affordable Options
must first ensure adequate demand for such uses exists. As the costs of higher education and housing continue
For instance, additional uses should be avoided if the space to escalate, there is a growing need for more affordable
will be difficult to lease to reputable tenants or will result
student housing options. Indeed, after tuition costs, housing
in increased construction costs that do not outweigh the
is a student’s biggest cost (Pimentel, 2019). According to a
additional revenue (Nyren, 2016). Another concern is the
study published last year, 36 percent of students attending
increased complexity that a mixed-use project can entail
with regard to obtaining financing though this can generally
be overcome (Friedman, 2015).

C. Demand at Community Colleges

Two-year community colleges are often overlooked by
student housing developers despite the fact that, for
instance, “42 percent of all undergraduate students and 25
percent of all full-time undergraduate students were enrolled
in community college” in the fall of 2014 (Ma & Baum,
2016). While four-year colleges remain the focus of most
private student housing development, two-year colleges
Figure 3: The Radian in Philadelphia, PA, neighboring the campus of
have experienced increased development of private the University of Pennsylvania, sits on a retail podium with restaurants,
student housing in recent years (Pena, 2017). Compared a bank, and a CVS Pharmacy (source: Google Maps).
to the tens of thousands of student housing beds delivered
annually at four-year colleges, however, the total number
of student housing beds delivered at two-year colleges in
2017, the best year since 2014, barely exceeded 1,000.
Despite these small numbers, some in the industry believe
that student housing developers will increasingly seek sites
near community colleges (Brass, 2018).

Additional caution must be exercised when considering a

project near a community college due to certain unfavorable
demographic trends and funding concerns. Enrollment at
two-year colleges has been declining since 2010 as students
Figure 4: The Edge Student Village in Philadelphia, PA, adjacent to
put off community college while the economy is strong Temple University, includes a retail component with a movie theater,
fast-casual restaurants, and other stores along Broad Street, a busy
2 By one estimate, student spending exceeds $15,000 per year commercial corridor, with a residential tower in the rear (source:
for the average college student (Friedman, 2015). Google Maps).

78
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