COVER STORY, APRIL 2012

EXTRA CREDIT
College Station, San Marcos have deep roster of student housing developments.
John Nelson

New construction is difficult to execute in today’s tentative commercial real estate market, a fact not lost on student housing developers. As part of their due diligence, developers evaluate the growth potential of the neighboring college as well as the economy of the state and region, among other factors.

Developers have found Texas college towns San Marcos and College Station to be promising market for new developments, with several student housing properties either breaking ground or coming on line in the near future. College towns in the Sunbelt, Texas in particular, are in high demand for student housing firms.

“The Sunbelt is particularly attractive because it’s a region with strong enrollment growth,” says Mitchell Smith, vice president of property operations at The Scion Group, a Chicago-based real estate services partner to higher education institutions, foundations and private-sector providers of student housing. “Most of the schools in this region are adding new students at a rate greater than the market is adding new beds.”

Developers have determined Texas to be a growth market due to its bolstering enrollment in its universities, a growing statewide populous, a large stable of higher educational institutions, available land for development and a boom of children in the state’s K-12 program. A lot of this growth is evident in the tertiary college markets such as San Marcos and College Station after the University of Texas–Austin capped enrollment.

“Texas is a great state with a solid and growing higher educational system,” says Ted Rollins, CEO, co-chairman and co-founder of Campus Crest Communities Inc., a Charlotte, North Carolina-based student housing development, ownership and management firm. “We’re looking at more markets in Texas.”

The student housing sector in general experienced a strong 2011 with $2.2 billion in total property and portfolio sales, which is a 40 percent climb from its total volume for 2010, according to New York-based research firm Real Capital Analytics. In addition, investors are focusing their capital on several new developments.

“Student housing has outperformed most other real estate assets throughout the recession, and it’s getting an enormous amount of investor interest, which is driving down cap rates,” says Wes Rogers, president and CEO of Landmark Properties, an Athens, Georgia-based student housing developer.

“Student housing is holding its own,” continues Brian Thompson, senior vice president of Chicago-based Harrison Street Real Estate Capital, a private equity firm that invests in student housing properties. “In some instances it has outperformed other properties. That’s why you’re seeing the interest from non-student housing groups on developments and acquisitions.”

Student housing properties tend to charge more for rent when compared to traditional multifamily communities, but Rogers believes that students in Texas are uniquely positioned to handle the extra cost for the location and amenities that student housing properties offer.

“The state economy in Texas held up better than every other state in the country through the recession,” says Rogers. “ The students have a little more disposable income than they might in most other states. It’s more students with more money.”

Although the state’s universities have several developments in the pipeline, the underwriting standards for new construction are still quite strict. Rafael Figueroa, president of Collegiate Companies, an Irving-based real estate services firm specializing in student housing, says that getting construction loans is taking longer and are more difficult to obtain than it was before the downturn. However, Figueroa acknowledges that the demand and growth in the region necessitate new construction.

“There is an appetite for student housing,” says Figueroa. “The pipeline hasn’t been shut off, it’s just more difficult.”

Student housing developers have shown savvy by building in close proximity to campuses in order to make their products attractive to students, lenders and investors. Building strictly within a mile or two of campus has become the norm in order to maximize rents and mitigate risk of low occupancy.

“Investors and lenders have realized there’s an exposure to new supply when you don’t have that location and your property ages,” says William Talbot, executive vice president of investments at American Campus Communities, an Austin-based student housing developer, owner and management company. “However, you have seen development opportunities lately in San Marcos and College Station that are farther from campus.”

San Marcos

San Marcos has a strong appetite for student housing developments, as the enrollment at Texas State University has swollen to approximately 32,572 students. The university offers 97 bachelor degree programs, 89 master degree programs and nine doctorate programs.

“San Marcos is a great market, it’s almost a case study for us,” says Mike Hartnett, chief investment officer, co-chairman and co-founder of Campus Crest. “It has great growth and enrollment continues to grow steadily.”

Located halfway between Austin and San Antonio, San Marcos is a city with a population of approximately 45,000. The new developments in the pipeline or under consideration include the 172-unit Phase II of San Marcos–Aspen Heights, the 187-unit The Retreat at San Marcos, an expansion at Hillside Ranch Apartments and the 77-unit Chestnut Street Lofts.

The Retreat at San Marcos is a cottage community for students at nearby Texas State University in San Marcos. The development is slated to open in time for fall classes.

Landmark Properties, Harrison Street Real Estate Capital and American Campus Communities partnered in the development of The Retreat at San Marcos, a cottage-style community located a half-mile away from campus.

The increase in cottage developments such as The Retreat at San Marcos is a nationwide trend that has gained widespread traction. Cottage properties are an attractive alternative to traditional student housing properties because they feature detached homes with a sense of both privacy and community.

“The independent lifestyle (cottage) housing offers can be particularly popular in Texas and among students in general, who are growing up with more personal space than ever before,” says Smith.

Landmark had to go through a grueling 8-month process to get the property site rezoned to develop the community, which is slated to open in time for fall classes. The cottage community’s location a half-mile from campus offset their concerns about all the new student housing developments in the area.

“I am concerned about all the new supply in the market,” says Rogers. “We do feel comfortable with our development because our location is impossible to replicate.”

The new supply hitting the market is a direct result of the school’s growing enrollment and need for more housing options. Thompson notes that the growth has legs to continue for the next several years.

“Texas State is one of the fastest growing schools in the state,” says Thompson. “In terms of enrollment growth, where this school is projected to grow during the next couple of years isn’t going to slow down anytime soon.”

College Station

College Station, a town with an approximate population of 94,000 people, is equidistant from Houston, Dallas and Austin. It is also home to one of the largest universities in the country — Texas A&M University.

“Texas A&M is the sixth-largest university in the United States, and its enrollment for fall 2011 was more than 50,000 students for the first time in school history,” says Trey Verbick, vice president of consulting services and market research at Collegiate Companies.

A rendering of The Stack, a 400-bed student housing property located in College Station. The Stack is the first phase of the Legacy Point mixed-use property, within walking distance of Texas A&M University. Irving-based Collegiate Cos. will operate the five-story student housing development.

Texas A&M has a top-notch athletics program, enrollment growth, a 9,500 graduate student program and attractive demographics for developers. The city has several student housing developments in the pipeline, including The Plaza at College Station, a 600-unit, on-campus development that is slated to break ground this summer. Other developments include The Stack at Legacy Point, the 13-unit College Main Lofts, the 57-unit Falcon Point Condos and Phase V of University Heights.

The city has available land for development, even some parcels close to campus. For The Stack, Culpepper Family LP will demolish its vacant Albertson’s building to make way for the five-story property that will house around 400 students.

“There were some in-fill lots that have been sitting vacant for many years for one reason or another that have now become available,” says Figueroa, whose company, Collegiate Cos., will manage The Stack. “That’s where a couple of these very large projects are coming in the near future.”

College Station has limited barriers to entry and the scenario of being overbuilt is a valid concern. So much so that Landmark Properties had to reevaluate a student housing development that it wanted to build.

“We actually had a site under contract in College Station and we dropped it because of all the new supply,” remarks Rogers.

Despite concerns of overbuilding, Texas’ economy remains attractive and the enrollment at Texas State and Texas A&M is projected to be healthy for years to come. With those conditions, student housing developers, owners and operators will continue to conduct business in San Marcos and College Station.

©2012 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 553-9037.