Private capital is making space for student housing

Fund managers invigorate the niche student housing sector in the US 

Campuses bustle as students continue to return post-pandemic, while the US housing shortage is further fuelling demand for purpose-built student accommodation. According to a study by UCLA, many University of California students are currently unhoused. This jumps significantly for community college students in California. Some on-campus schools have even paused on-campus enrolment until they can address the housing shortage. Others are turning double rooms into triples and converting lounges into bedrooms to accommodate the need. The resulting lack of housing on, and with proximity to, campus positions private developers nicely to fill the void. 

Historically, the sector has been known for its resilience and consistent demand until COVID-19. After an understandable dip in 2020, student housing deals seem to be making a comeback with 125 deals globally in 2021 – the highest since the pandemic. Student housing deals increased in 2022, with 45 so far this year.

Fund managers regard on- or near-campus housing as very resilient due to reasonably stable demand. This is because student housing demand has historically risen as university enrolment grows. Despite the pandemic, students between 18 and 24 are eager to return to on-campus housing and it is little mystery why. Modern student residences frequently have games rooms, pools, and study rooms. With young adults posting their experience in these dorms on social media, FOMO (fear of missing out) runs rampant . Students are unenthused about living with their parents and want the traditional college experience that on-campus living offers. But now, housing is in short supply. That’s where private capital giant Blackstone Group seeks to take advantage.

Room for growth
In April 2022, Blackstone announced the purchased American Campus Communities (ACC), the largest developer and manager of high-quality student accommodation in the US, for $13bn including assumed debt. This adds to Blackstone’s already committed $7bn in the sector, ACC’s 166 properties on 71 college campuses to its portfolio. Despite seeking a hybrid model – remote and in-person learning – on most campuses, the firm may be well positioned to increase rents as students return in the coming years. 

In addition to persistent demand, the sector presents a timely advantage for fund managers. According to the Wall Street Journal, new student housing construction projects are relatively few at present, which means major players are unlikely to face much competition, apart from existing assets and vacancy. Regarding rent stability, student rent is often paid for by parents or expansive student loans, steadying payments. Based on strong demand, little supply, and stable returns, student housing is positioned to continue this upward trend.