2021 Student Housing Market Overview and 2022 Outlook - Flipbook - Page 26
strategic relationships with vertically integrated domestic partners through supplying low-cost equity to target development, Class A
As large-scale development projects continue to deliver across the nation to meet the growing demand for campus housing driven
core-pedestrian, and select value-add opportunities. In turn, cross-border funds helped support 2021’s sharp year-over-year increase
by national enrollment growth, it is anticipated that 2022 will be a tremendously active year for transactions. With recent inflation
in private capital acquisition volume of 267 percent – a total of $6.9 billion. For example, GSA acquired 13 assets worth $616 million,
fluctuation and the Federal Reserve appearing more aggressive on corrective measures, capital groups appear wanting to capitalize
primarily from Harrison Street. This comes a year after acquiring University Communities for nearly $700 million as an entry point to have
on dispositions ahead of potential additional rate hikes. Moreover, the student housing sector is continuing to see highly-institutional
a domestic management operation. In early 2022, Newmark Student Housing sold GSA a 4-property portfolio valued at $154 million
equity sources build scale with financial conglomerates Blackstone, Brookfield, PIMCO, PGIM, and TPG focusing on large transactions
– a continuation of the group’s desire to scale. Singapore-based Ascott Residence Trust more than doubled its domestic ownership of
with existing and new JV relationships. The further ownership consolidation of newer pedestrian assets at Power-5 universities appears
student housing by acquiring 7 assets amounting to nearly $462 million. Canada-based, QuadReal, in a domestic partnership with CA
possible to impact the competitive landscape and level of general market transparency. Smaller private capital groups appear willing to
Ventures, sold 8 assets amounting to $523 million in efforts to recycle capital into favorable capital markets tailwinds.
pivot to assets slightly further from campus, as well as healthy secondary and tertiary markets to find their desired yield. As student
housing fundamentals continue to outperform other alternative asset classes, an influx of capital desiring to build a position in the
The economic resilience, perpetually stabilized occupancy rates, secular net positives from the pandemic, and attractive risk-adjusted
sector will keep cap rate movement near historic lows – fostering a favorable seller environment for 2022. Large single-asset, portfolio
returns have made the student housing sector an attractive investment vehicle and diversification mainstay for both foreign and
sales, and portfolio recapitalizations will likely continue to be a major theme of the industry over the coming year.
domestic capital. With more new equity flocking to the student housing sector, demand is slated to remain high with an abundance of
capital keen to scale their student exposure.
Cap Rates
Seller Profile
For a ninth consecutive year, cap rates in 2021 compressed to record levels, due in part to the interest rate environment and favorable
financing options available for well-performing student assets throughout the country. 2020’s investment activity marked the initial
Seller profiles in 2021 continued historic trends with institutional and private capital groups controlling most of the seller landscape.
movement of the great flight to quality, as equity sources moved to secure stabilized assets with strong positioning in major markets
Cap rate compression, an abundance of available capital, and accretive financing contributed to premium pricing, and, in turn, the
nationwide – compressing average cap rates for the industry. 2021 marked a continuation of the flight to quality movement as equity
increased disposition volume seen in 2021. The private sector took the majority of market share with over $6.5 billion in dispositions,
partners maintained strict guidelines for their investment criteria to focus on assets with strong performance in markets that offer
a 229 percent increase compared to 2020 and a 44 percent increase from 2019’s pre-pandemic metrics. Institutional and equity funds
longevity prospects for future enrollment. Furthermore, with limited high-quality assets available in Tier-I Power-5 markets, a competitive
amounted to $3.5 billion, a marginal decrease of 1.7 percent compared to 2020’s metrics and a 95 percent increase from 2019’s
bidding environment evolved that pushed investors toward new pricing heights.
volume. Cross-border capital amounted to $1.4 billion, a substantial year-over-year increase of 757 percent and the highest disposition
activity on record for the capital source. With high demand from private capital, REITS, international equity, and new entrants entering
The average cap rate for investment-grade student housing assets that traded for $2.5 million or more in 2021 landed at 5.23 percent,
the space, owners were incentivized more than ever to sell and capitalize on the competitive buyer landscape.
a 13 basis-point decrease over the previous year. In the fourth quarter of 2021, cap rates dropped 10 basis points from the third quarter
2019 BUYER PROFILE
User/Other
5%
2020 BUYER PROFILE
User/other
5%
CrossBorder
20%
Inst'l/Eq
Fund
23%
Private
48%
Private
29%
average, reaching an all-time low of 5.10 percent. This reflects a 60 basis-point decrease over a five-year average. Newmark Student
2021 BUYER PROFILE
User/Other
4%
Housing expects cap rate compression to trend low throughout 2022 given heightened capital supply, inflation hedging rent growth, and
positive yielding cash flow opportunities. As pre-leasing velocity accelerates with higher education experiencing significant application
CrossBorder
16%
gains, new entrants and current players will begin to focus more recycled capital into value-add and secondary market opportunities.
The investment community will be acutely monitoring the prospect of the largest year of enrollment growth for the nation, and with it,
CrossBorder
45%
supply and demand fundamentals strengthening at major flagship universities.
Inst'l/Eq
Fund
21%
Private
58%
Listed/REITs
4%
Inst'l/Eq
Fund
21%
Listed/REITs
0%
Conventional cap rates compressed over double the pace of student housing. The average conventional cap rate for assets that traded
for $2.5 million or more in 2021 was 4.94 percent, representing a 25 basis-point decrease from 2020 metrics. The cap rate spread
Listed/REITs
1%
Source: Real Capital Analytics
between student housing and conventional multifamily widened in 2021 to 29 basis points. The velocity of conventional cap rate
compression and the widening in the spread compared to student housing is primarily due to tremendous capital supply, favorable
demographics in primary growth markets, outsized rent trade-outs spurred by macroeconomic drivers, and the accretive nature of
financing availability for conventional multifamily. While the stated difference of 29 basis points represents national averages, it’s
become commonplace for conventional multifamily to trade 75 to 140 basis points thinner than student assets when looking solely
REITs amounted to only $177 million in dispositions for 2021. The minimal disposition activity has been the common trend of the
in the Southwest and Southeast conventional growth markets. The differential in going-in yield has increased the phenomena of the
last several years with only a few large transactions occurring – namely Greystar’s 2018 buyout of EdR and TPG and Cardinal Group’s
student to conventional conversions. The increasingly competitive conventional marketplace and ultra-low cap rates it produced, led
purchase of Preferred Apartment Communities’ 8-property portfolio in 2020. REITs have maintained focus on building out development
some traditional multifamily owners to look towards student housing as means to create an arbitrage-like scenario, particularly in high-
pipelines with the remaining in-fill locations at Power-5 institutions.
2 0 2 1 S T U D E N T H O U S I N G M A R K E T O V E R V I E W A N D 2 0 2 2 O UT L O O K
NEWMARK
27