‘Count on getting heads in beds’

With the fall semester in flux for college students, the ripple effects are far-reaching — for college towns that heavily depend on residents to infuse capital in their downtown storefronts, restaurants and real estate.

In many ways, the off-campus housing market was well equipped to weather the coronavirus pandemic and its aftermath. 

“The multi-family market was extremely robust going into [the coronavirus] and student housing has had solid tailwinds. There has been relatively static demand that was predictable — a set number of seats in the university, and so long as the supply doesn’t dramatically change year to year, you can count on getting heads in beds,” UCLA finance and real estate lecturer Paul Habibi told Yahoo Finance.

In addition to teaching students about real estate, Habibi is an investor himself; he owns and manages several properties across the country, including multi-family apartments adjacent to UCLA’s campus, making him a landlord to hundreds of students. The university is located in the affluent West Los Angeles neighborhood of Westwood, nestled in between Bel Air, Beverly Hills, Santa Monica and Brentwood. 

“There’s really solid rental value per square foot with housing for students — higher density within each unit, higher propensity to pay rent. You make more on student housing than outside of the student market,” he added. 

Habibi gave the example of charging one person or couple $3,000 per month for a one-bedroom unit down the street in Brentwood, whereas he would be able to charge nearly double for an identical unit right next to the university because pricing is per bed.

A man wears a face mask to protect against the COVID-19 as he leaves the campus of the UCLA college in Westwood, California (Photo by MARK RALSTON/AFP via Getty Images)

‘Pre-leasing makes things a bit more steady’

At the start of the coronavirus crisis, cities and states implemented temporary eviction moratoriums across the country, leaving some property owners struggling to pay their property taxes, insurance and utility costs and maintenance fees. Landlords of multi-family units near college campuses, particularly in densely populated cities, have managed to navigate the economic downturn relatively well.

Students often lock down their off-campus apartments months before they actually head to campus, and historically, there’s very little fluctuation in the number of students who enroll at any given college one year to the next. 

“Pre-leasing makes things a little bit more steady than market rate apartments. Students are renting by the bed, and leases are tied to school years. Just being tied to the schedule makes it much more predictable than other markets,” said Ben Kasdan, principal at KTGY Architecture + Planning, which has designed 29 on- and off-campus housing projects spread across Connecticut, Pennsylvania, Florida, Wisconsin, Indiana, Louisiana, Wyoming, Oregon, California and Arizona.

“I was a little bit surprised by how normal most of the student housing developers are seeing their markets. In April, most of them were getting better rent payments than usual — in the 95% range. Pre-leases were all on track for the next school year… the way they would usually be,” explained Kasdan. 

Off-campus housing developer DMG Investments echoed a similar sentiment about the unique nature of the college housing market.

Architecture and design firm KTGY worked with American Campus Communities to build 2125 Franklin in Eugene, Oregon, an off-campus housing community for University of Oregon students. (Source: Jeff Amram)

“Our season starts in late July. The advantage of student housing, particularly for developers, is that you normally ramp up to almost full occupancy by the end of July or early August. It’s not unusual to see 97%, 98% occupancy — that’s the norm,” said Jeff Amengual, DMG’s chief operating officer.

With the impact of the coronavirus very much a moving target, the reality of the fall is still very much in limbo, but even without clear guidance or social distancing to be enforced, students are eager to return to the in-person experience. 

DMG, which has a portfolio of $600 million in real estate properties, specializes in college housing projects across New York, Texas and South Carolina under the brand Auden. The semi-luxury buildings are located near the campuses of SUNY Albany, Cornell University, University of South Carolina Upstate, and the University of Houston, Texas Southern University and Rice University. 

Currently, 67% of U.S. colleges and universities are planning for an in-person fall semester, though many will delay or truncate to mitigate the risk of contagion. But even without a clear green light from university officials about physical reopenings, students are clutching onto certain elements of the college experience as much as they can.

Will Fallana, a 17-year-old New Yorker, is an incoming freshman at Santa Clara University in Silicon Valley. He plans to live on campus in the fall. “I am not 100% sure… My parents are a bit concerned about living in close quarters, and would rather I stay home and continue online courses,” he said.

Referring to its Ithaca property near Cornell’s campus, Amengual said they are in the high 80s in terms of percent that’s already been pre-leased, which “says a lot about the confidence the students have in coming back.”

‘Targeting the top of the pyramid’

These off-campus developments that offer (temporarily closed) amenities like pools, game rooms, study rooms and in DMG’s case bed-bath parity, are catering to more affluent students and their families, who often serve as the guarantors. 

“Developers are targeting the top of the pyramid. Most of these students are still on their parents’ payroll and their parents aren’t going to default on a lease and the ones that have financial aid still have financial aid. Nothing has quite changed yet from the economic standpoint at least with this kind of layer of the market,” said Kasdan. 

More than 38 million Americans have filed for unemployment benefits since the start of the pandemic, but the effects have not been felt evenly. “[The coronavirus] has already erased the job gains of the past decade and has inflicted acute pain across the country. And while the burden is widespread, it is not evenly spread. Those taking the brunt of the fallout are those least able to bear it,” Federal Reserve Chair Jerome Powell said in a virtual conference this week.

Some college housing tenants have been forced to default on their rent payments, but they have been the outliers by far.

Plaza Verde at UCI in Irvine, California is an undergraduate student housing complex with a classroom space on the lower level of the community center. (Source: Creative Noodle)

“For the month of March, it was pretty good, April and May have gotten tighter, and the rest of the year will probably be a little tighter as well. In the student housing market space, we get a lot of prepayment for the entire year. There are a number of students who get subsidies. That’s also prepaid or paid in lump sum balances. So we’re seeing a fairly low issue on collections,”said Amengual. “It’s not the daunting problem we thought it might be. Where a student is having difficulty, we work with those students to help mitigate the circumstances. Overall, I think everybody is shouldering the burden and trying to keep things on a solid footing.”

While colleges won’t refund tuitions for the spring semester, leading to a bevy of lawsuits from students and their families, several institutions have agreed to return housing, dining and other administrative fees for some or all of the spring semester. And though students were prohibited from staying in on-campus housing when colleges went virtual, some of those living off-campus have decided to stay put.

“Curiously enough, even at this late date, we have a high number of students still at our facilities. They prefer not to go home. For some of them travel is daunting. They may be international and can’t or it’s too difficult to travel back home or maybe it’s not safe yet. We have a large percentage of students still at our housing. We’re happy to have that,” said Amengual.

Melody Hahm is Yahoo Finance’s West Coast correspondent, covering entrepreneurship, technology and culture. Follow her on Twitter @melodyhahm.

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