Billions Flow to Student Housing as Rents Soar

Investors are flocking to student housing as its rent growth outpaces traditional multifamily properties, lured by its resilience during economic downturns and higher-than-average returns.

Billions Flow to Student Housing as Rents Soar

Investors are flocking to student housing as its rent growth outpaces traditional multifamily properties, lured by its resilience during economic downturns and higher-than-average returns.

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Good morning. Investors are flocking to student housing as its rent growth outpaces traditional multifamily properties. Miami is rushing to complete a $350M soccer stadium before Lionel Messi's contract expires in 2025. Meanwhile, Blackstone (BX) and Vornado Realty Trust (VNO) are teaming up to develop Manhattan's first major production studio complex.

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Market Snapshot

S&P 500
GSPC
4,497.63
Pct Chg:
1.5%
FTSE NAREIT
FNER
698.85
Pct Chg:
0.8%
10Y Treasury
TNX
4.116%
Pct Chg:
-2.3%
SOFR
1-month
5.30%
Pct Chg:
0.0%

*Data as of 8/24/2023 market close.

INVESTMENT STRATEGY

Billions Funneled into Student Housing as Rent Growth Exceeds Apartment Market

Investors are flocking to student housing as its rent growth outpaces traditional multifamily properties, lured by its resilience during economic downturns and higher-than-average returns.

Rising star: Major investors are pouring billions into the student housing market attracted by its higher rent growth, outperforming traditional apartments. The off-campus student housing sector saw a 7.1% rent increase over six months, with some universities noting growth above 20%. Seen as "recession-proof," investments are especially concentrated in Sun Belt states, known for their substantial rent and enrollment hikes. However, this trend has raised concerns over the capacity of campus housing.

Yardi Matrix

Student housing rent growth this year has far outpaced previous years, data from Yardi Matrix shows.

Student housing vs. apartment market: While student housing rents have surged, apartment rents have begun to plateau after reaching record highs in the past. For instance, student housing rent growth this year has substantially surpassed previous years, with data indicating a marked increase in rent growth rates. In contrast, multifamily property rents rose at a more modest rate, making student housing a more appealing investment.

Major deals: BREIT's acquisition of American Campus Communities for $13B last year underscored the growing appeal of student housing in the commercial real estate market. In addition, Blackstone's ACC has initiated two major student housing projects within its $3B program. However, as student enrollments rise, many universities struggle to provide adequate housing, leading to local market imbalances. Cities such as Boston, for instance, are experiencing shortages in off-campus apartments.

Shifting tides: Investor interest in student housing is now leaning towards luxury properties near campuses. Last year saw record property sales in this sector, with over $10B invested for two straight years. However, 1H23 saw a slower investment pace due to higher rates, changing the investor landscape. Investment funds made up 52% of deals in 1H23, a jump from 12% in 2H22, while universities and public REITs reduced their participation. There's also a spike in foreign investment, especially from the Middle East and Asia.

➥ THE TAKEAWAY

Campus housing crunch: The booming student housing sector is a double-edged sword. On the one hand, it's attracting significant investment, but on the other, it's amplifying accommodation issues in university towns. With universities experiencing record enrollments, there's an urgent need to house the growing student body without overburdening local housing markets. As enrollments surge, investors are faced with the challenge of benefiting from this growth while also addressing the housing deficits in academic communities.

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STADIUM SPRINT

The Messi Mission: Miami's Race to Complete $350M Soccer Stadium

A rendering of Miami Freedom Park stadium, which is scheduled to open in 2025. PHOTO: ARQUITECTONICA/MANICA/ARQUITECTONICAGEO

As soccer legend Lionel Messi's contract expiration deadline looms large at the end of 2025, Miami races to complete a $350M soccer stadium for Inter Miami CF, facing environmental and logistical challenges that could potentially delay the project.

Seating surge: In a stadium 34 miles away in Fort Lauderdale, fans flock to witness the international soccer superstar, prompting the addition of 3,000 seats to cope with overwhelming demand. The surge in ticket prices coincides with Messi's influence in transforming the struggling team into Leagues Cup champions. Meanwhile, Miami is eagerly seizing the opportunity to tap into the region's soccer frenzy, with plans to unveil a 25,000-seat stadium as part of the ambitious $1B Miami Freedom Park project.

Race against time: Navigating the labyrinth of final permissions takes on a critical tone as Messi's contract expiration looms, potentially leaving the Miami soccer stadium without its star attraction. Some land-use experts expressed concerns about the timeline, suggesting a more pragmatic three-year horizon, pushing the stadium's opening beyond Messi's contract limit. Meanwhile, Jorge Mas, one of the driving forces behind the project, remains optimistic about the permitting process, aiming to deliver a year-round entertainment haven.

Navigating the skies: Proximity to Miami International Airport brings its own set of complexities to the forefront. An initial report from Miami-Dade County raised questions about the stadium's height, potentially conflicting with airport zoning codes, and highlighted concerns over stadium lighting affecting air traffic. Responding to these challenges, developers downsized the stadium from 40,000 to 25,000 seats. While the FAA greenlit the plans, the clock ticks as their permission expires next March if construction delays persist.

➥ THE TAKEAWAY

Stadium hurdles: Before the first brick is laid, several environmental concerns linked to the site's former golf course use must be addressed. Moreover, the potential traffic implications of this project on the airport and adjacent areas are still under review. Miami Freedom Park's development team, with prominent figures like Beckham and the Mas brothers, is acutely aware of the financial implications of any setbacks, particularly if the project overshoots Messi's contract timeline. The stakes are high, and the city watches with bated breath.

🌐 AROUND THE WEB

📖 Read: According to CBRE, the pandemic-induced talent migration from major markets has been exaggerated and is slowing down, with larger cities retaining talent pools compared to Sun Belt areas.

🎧️ Listen: In the latest TreppWire Podcast episode, Bob Knakal of JLL dives into a data-centric market overview. Discussing market influencers, transaction trends, emerging retail positives, public policy, and even a touch of Seinfeld.

NOW STREAMING

Lights, Camera, Manhattan: Blackstone & Vornado's Cinematic Venture

Blackstone, Office Giant Vornado to Join Forces on Manhattan’s First Film-and-TV Studio

Sunset Pier 94 Studios, shown in developer’s renderings, would have six soundstages. PHOTO: COURTESY OF SUNSET STUDIOS

Blackstone (BX), Vornado Realty Trust (VNO), and Hudson Pacific Properties (HPP) are teaming up to develop Manhattan's first major production studio complex to tap into the growing demand for content fueled by streaming services.

Dream team: The three investment giants are collaborating on a groundbreaking $350M project to establish Manhattan's first expansive production studio complex, Sunset Pier 94 Studios. Set to rise along the Hudson River, the 266KSF campus will feature six state-of-the-art soundstages, offices, writers' havens, and a host of support facilities. The venture aims to transform NYC's waterfront, fostering a vibrant hub for creative expression, with completion expected by the close of 2025.

Hollywood comes back: Amid the rise of streaming services, the demand for sound stages and production facilities has surged, catalyzing a wave of new developments and higher rents for studios. The creators of Sunset Pier 94 Studios look to capitalize on the scarcity of stages and the convenience for industry stars in NY. Although NYC is the second-largest studio site in the US, developers have typically favored Queens due to lower development costs (and Hollywood started out in Flushing). However, Sunset Pier 94 Studios is banking on charging top rents for their facilities, which will be near star residences.

Industry challenges: Despite the streaming boom, the industry faces challenges like a strike by screen actors and writers over contract differences with studios. However, industry insiders believe studios will rebound with pent-up demand once these issues are resolved, as seen after the 2008 writers' strike. Despite potential industry consolidation, studio operators maintain optimism, recognizing the importance of investing in original content production.

➥ THE TAKEAWAY

Streaming dreams: The Manhattan studio venture, developed in partnership with city agencies, plans to leverage city programs and tax benefits to bolster NY's film and TV production business. Vornado will leverage its long-term lease of Pier 94 to secure a 49.9% ownership share in the arrangement. At the same time, Blackstone's prior venture into media-related real estate positions them with a 24.5% stake in the studio, with Hudson Pacific holding a 25.6% stake.

✍️ DAILY PICKS

  • Breaking ground: Microsoft (MSFT) has begun construction on a $1B data center in Mount Pleasant, Wisconsin, with plans for four buildings and operations set to commence in late 2026.

  • Cooling down: Texas manufacturing faces contraction as the production index falls to its lowest level since May 2020, along with slowing employment growth and increased wages.

  • Invincible industrial: Despite interest rate hikes affecting sales volume, industrial property prices remain steady, increasing from $124 PSF in 2022 to $131 PSF in 2023.

  • Growth mode: Vicki Match Suna, NYU Langone Health’s real estate head, talks about the hospital’s expansion plans, real estate opportunities, and sustainability regulation challenges.

  • Permit plunge: Multifamily development permits have fallen 32.2% YoY, with permitting and starts remaining stagnant, while single-family permits and starts show signs of recovery.

  • Rate surge: The housing market is facing heightened uncertainty as mortgage rates surge past 7%, leading to a slowdown in deals, a drop in loan applications, and a freeze in transactions.

  • Green gold rush: NYC could rake in up to $43M in tax revenue per year by 2027 from its legal and growing cannabis market. Wall Street will never be the same.

  • Industrial expansion: Global industrial property leader Prologis (PLD) acquired a fully leased industrial property in Chicago's southwest suburbs with long-term tenant Ed Tucker Distribution.

  • Seller's advantage: CRE sellers are gaining bargaining power as average asking prices rise and inventory decreases, as indicated by a report from CREXI, which highlights a 4.7% increase in average July asking prices as available assets and inventory fell.

  • Avoiding bankruptcy: Blackstone (BX) shed its distressed multifamily portfolio by selling a 51% stake in 11 Manhattan buildings to Atlas Capital Group for $142.4M, including $90M in mezzanine debt.

  • Unearthing opportunities: Investors in San Antonio's CRE market are facing pricing challenges, leading to creative investment strategies like assuming existing loans and focusing on desirable neighborhoods like Stone Oak for future growth potential.

  • Debt-free: Despite tenant losses and a challenging office market, the Ohio Teachers Fund has paid off a $150M loan on 77 West Wacker, aiming to enhance low occupancy rates to stand out from struggling Chicago office landlords.

  • Nightlife divestment: Rockrose Development has offloaded its 12% stake in the former Flatiron district location of Jay-Z's renowned nightclub to Adams & Co. for $43.5M.

  • Grocery gains: First National Realty Partners acquired Windsor Court, a grocery-anchored shopping center in Windsor, Connecticut, anchored by Stop & Shop.

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