Western Real Estate Business

SEP 2018

Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.

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62 • September 2018 • Western Real Estate Business www.REBusinessOnline.com STUDENT HOUSING AT THE CENTER OF MIXED-USE COMMUNITIES By John David Booty, Executive Vice President, Ventus Group in Los Angeles Purpose-built student housing re- mains an attractive investment fol- lowing a record year in 2017. Since student housing is still catching up to demand, and boasting cap rates on par with traditional multifamily, there are plenty of development, ac- quisition and value-add opportunities within the sector. When considering the long-term success of a student housing project, developers and investors are begin- ning to see new potential for incorpo- rating the product type into mixed- use developments to feed continued demand and optimize returns. As stu- dent housing ventures increasingly shift towards these all-encompassing mixed-use environments, investors are asking: what factors should be considered when approaching these types of investments? As the devel- oper of one the largest mixed-use stu- dent housing developments in South Los Angeles, here are the top factors to consider: Student Housing Remains Strong & Stable A fundamental driver of student housing demand — the number of college and university students in the country — is projected to continue to increase over the next several years, with the National Center for Educa- tion Statistics forecasting a 13 percent increase in enrollment for students under age 25, and an 18 percent in- crease for students age 25 and over, from 2014 to 2025. As such, the stu- dent housing sector remains strong nationwide. Student housing creates the poten- tial for several residents with strong credit (thanks to parents co-signing the leases) in a high-density living situation, as many purpose-built student housing communities have four to six beds per unit. Owners and developers are able to minimize the space occupied by each resident, while maximizing occupancy with year-round leases. These characteristics of student housing not only make it a strong standalone investment, but also make the product type an outstanding com- plement to other uses, such as retail, hospitality, and office. The benefits of placing student housing at the center of mixed-use de- velopments is two-fold. Investors can diversify their portfolio by balancing the more stable asset class with high- er-risk, higher-reward product types to optimize economic returns, as well as create a sort of ecosystem where a large cohort of student residents con- tinuously feeds the demand for the other uses of a project. A Built-In Stream of Demand High-density student housing brings to a location a large population that is comprised overwhelmingly of those in the same age demographic, and that present other similar charac- teristics as well. In turn, this means that student housing provides unique demand drivers for other real estate uses, mak- ing it an ideal centerpiece to modern mixed-use developments. Standout complements to student housing include: Retail: Busy students, especially those previously unfamiliar with the area their school is located in, or who do not have a car or quick access to public transportation, value the con- venience of retailers in close proximi- ty to school and housing. This include both daily needs retailers, as well as restaurants, entertainment, and other shopping choices that present stu- dents with easy and safe options for social excursions, and ultimately help build a sense of community. Some of the largest retailers in the country have even been adapting their models to fit into college submarkets in recent years. Hospitality: Universities drive de- mand for hospitality in several ways. Placing a hotel adjacent to student housing provides an excellent loca- tion for visiting families to stay. Ho- tels can also host alumni visiting for sports and networking events, vis- iting scholars and those attending academic conferences at a university. Developers are taking note and there several projects underway across the country that place hotels near univer- sities. For example, a development is rising directly next to Texas A&M University that includes a 250-key, 250,000 square-foot hotel and a 23,000 square-foot conference center. Creative Office Space: Creative of- fice space near universities presents an opportunity to companies seeking to foster a presence among students and attract strong interns, student employees or prospective employ- ees. Flexible office space can also be rented out to students studying for exams or working on group projects — exact use can shift based on evolv- ing demand. Location, Location, Location All universities have their own cultures, as well as demand drivers unique to the submarket where they are located. Therefore, when deciding whether a particular college would be a fit for this type of development, or considering the scale, scope and product types of a student housing/ mixed-use project, it is important to comprehensively assess the location. Submarkets with high barriers to en- try present the most long-term value and reduce the chance of new compet- itors, so these locations are ideal. Further, looking beyond the uni- versity to the submarket as a whole is beneficial when determining uses. While in some cases a university might be the primary draw, in more urban areas, there are many other fac- tors to consider. For example, we are currently underway on The Fig, a 4.4- acre, $400 million development near the University of Southern California that incorporates student housing, market-rate and affordable multifam- ily housing, retail, office space and a 298-key hotel. A hotel of this scale is appropriate as it will not only serve the drivers that result from the university itself, but also tourism to the Exposition Park area. Tourism is expected to increase in the coming years as a result of the $1 billion Lucas Museum of Narrative Art development underway, the $270 million renovation of the L.A. Coli- seum and many other projects. The Bottom Line Mixed-use projects are always a bal- ancing act, but university submarkets offer an excellent opportunity to tar- get a stable demographic — student residents — and create an ecosystem where several different aspects feed off of each other. By offering retail, hospitality and office space alongside purpose-built student housing, developers present an opportunity for investors to di- versify their portfolio, while in turn, contributing to the success of thriving academic communities. Credit VisionScape Imagery In addition to The Fig, tourism in this area is expected to increase in the coming years as a result of the $1 billion Lucas Museum of Narrative Art development underway, the $270 million renovation of the L.A. Coliseum and many other projects. Credit VisionScape Imagery The Fig is a 4.4-acre, $400 million development near USC that incorporates student housing, market-rate and affordable multifamily housing, retail, office space and a 298-key hotel.

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