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Student housing has a new mantra: bigger is better

When the Standard, an off-campus student housing complex, opened in the fall in Bloomington, Indiana, welcoming its first group of residents, it had a decidedly resort vibe. Besides the necessary pool and fitness centers, it attracted students with two pickleball courts, a dog park and a motion sports simulator. The complex even used a roommate matching app.

The arms race for amenities in student housing is nothing new, but what’s striking about the Standard is its size: 1,000 beds, about twice the size of a typical dorm. In fact, Standard could accommodate 3 percent of Indiana University’s more than 34,000 undergraduate students.

Off-campus student housing complexes across the country are getting bigger, some housing more than 1,500 students, and they’re being built on prime parcels as close to campus as possible, as developers seek to better manage their results.

“Having larger projects allows us to have more amenities because we can spread the costs over more beds,” said J. Wesley Rogers, chief executive of Landmark Properties, the developer of Standard resorts in 23 states , including that of Indiana.

But developers face challenges, including the higher cost of land near campus and the possibility that the university’s enrollment will decline.

The move toward larger complexes comes as the industry sheds its image as a niche, locally owned business and instead attracts more institutional and global investors, said Dave Borsos, vice president of capital markets. for the National Multifamily. Washington Housing Council. The two largest international investors in the market are now Abu Dhabi Investment Authority and Global Student Accommodation, a London-based property management company.

Large investors bring greater oversight. “The industry demands a different level of expectation when it comes to efficiency and management,” Borsos said.

One strategy is to place more students in less space. Some units at the Standard have five bedrooms, a trend Mr. Borsos has seen become increasingly popular as developers try to install more beds.

Despite smaller accommodations, more beds mean lower rent for each roommate. And larger developments also allow for more luxurious perks, like yoga studios, climbing walls and fire pits.

Landmark’s largest student housing complex is the Standard in Seattle, which opened Sept. 22 next to the University of Washington. It includes two high-rise towers and one mid-rise building, which together will house 1,545 students. The university, which has more than 34,000 undergraduates, does not require first-year students to live on campus as many universities do, so the pool of available residents is larger than elsewhere .

The transition to “bigger is better” has accelerated, Borsos said. Just a few years ago, it would have been difficult to imagine a 1,500-bed complex. In the early 2000s, developers bet that students would trade longer commutes for better amenities and more spacious housing. Groups of students lived in areas of cities that were not always part of the university community and used shuttles to get to campus.

But now developers can get higher rents with housing closer to campus, providing a better return on their initial investment, which can be high. The cost per bed in a housing complex located a half-mile or less from campus is $131,244, about 77 percent more than student housing located more than two miles from campus.

The higher rate of return has attracted other developers, who are flocking to campuses with huge developments. Cranes are part of the skyline around the University of Texas at Austin, and construction is brisk along the outskirts of Purdue University in West Lafayette, Indiana.

Core Spaces, which builds off-campus student housing, is getting bigger and closer. Dan Goldberg, president of Core Spaces, said there had been “a proliferation of purpose-built housing, further and further from campus,” but that the trend had reached its peak. Since then, the company has changed direction. “We typically build 15- to 20-story buildings as close to campus as possible,” he said.

But obtaining land near campus is often expensive and subject to local zoning. Projects can take years to get off the ground. Despite the challenges, Mr. Goldberg believes that “campus rapprochement” will outlast other trends.

“We’ve seen competitors build extravagant facilities,” like video arcades and movie theaters, he said. “What we’ve seen over the last five years, what students want is more wellbeing, more fitness, more study space and quality Wi-Fi. »

But the most sought-after asset is proximity. “Students want to be able to get out of bed and go to class,” he said.

Core Spaces has developed campus-side housing in dozens of cities across the United States. The company’s Hub on Campus brand, for example, spans from the University of California to the University of Florida. Its largest, with more than 1,500 beds, is the one located near the Virginia Tech campus in Blacksburg, Virginia.

The developer’s hub in Champaign, Illinois, opened a block from the University of Illinois at Urbana-Champaign in 2021, catering to students by offering a rooftop terrace and pool, a barbecue area and fitness center with sauna. Upgrades include smart TVs, memory foam mattresses, and sound systems.

The company has larger developments in the works, including several with more than 2,000 beds in Knoxville, Tennessee; Raleigh, North Carolina; and Berkeley, California. Its largest project will be adjacent to Clemson University in Clemson, South Carolina, with more than 2,300 beds. And Mr. Goldberg said he would not rule out developing even larger complexes.

“We don’t put a limit on the size of buildings,” he said, adding that developments are carefully reviewed as they are subject to market demands.

Still, the transition to larger developments could have its limits, said Jaclyn Fitts, executive vice president and co-head of the national student housing team at CBRE, a real estate services company.

To fill larger facilities, developers face a daunting “capture rate,” that is, the percentage their developments seek to fill relative to the number of undergraduate students available for off-site housing. campus, she said. Traditionally, developers aim for a capture rate of 2 to 3 percent, which is high enough to make a profit, but low enough to limit exposure if the economy deteriorates and demand declines.

Fitts sees the “sweet spot” for off-campus development being in the 400 to 600 bed range, as these are more realistic to fill. “You need to know that you have the demand to fill your housing,” she said. “The economy has to work.”

But Landmark’s Mr. Rogers said a capture rate of 6 to 7 percent made economic sense “depending on market dynamics.”

The appetite to think big could come back to haunt developers, said Anne P. Villamil, an economics professor at the University of Iowa. They may be banking on an endless supply of students, but Ms. Villamil pointed to studies that have shown that demographic changes will cause the undergraduate population to decline substantially starting in 2025, a trend some call the “cliff registrations”.

She predicts that fewer students will mean survival of the fittest among apartment complexes that could end up empty if they can’t compete.

“We have been through a period of uncertainty with all the shocks that have hit the economy, but this is another shock that is clear and coming,” Ms. Villamil said.

Mr. Borsos, however, said he had seen the same studies and predicted a more modest decline. “Large public universities will continue to see significantly more applicants than they can accommodate,” he said.

So, will the 2,500-bed complex become commonplace? “If a developer has access to land at a university and thinks there is enough capacity to build something bigger, they can,” he said.

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