COVER STORY, JANUARY 2010

THINKING OUTSIDE THE BOX
Competition is increasing in the student housing sector. How are Texas developers distinguishing their projects from the rest?
By Coleman Wood

Student housing is much different than it was just a couple of decades ago. When looking at the typical off-campus community being built today, one only needs to cite the ubiquity of private bathrooms and the long list of resort-style amenities as the most obvious examples of this. These things only scratch the surface of the student housing industry today. Students are becoming much more discerning tenants when choosing a place to live, and the market is much more crowded than it has been. This is causing developers to adopt creative approaches to student housing to gain a leg-up on the competition and make sure their projects are leased up.

Making sure beds remained occupied becomes increasingly hard when one looks at Texas’ student housing market. The past decade saw a drastic increase in new student housing projects, many of which were built 3 to 5 miles off campus, where developers could find enough land to build the larger communities they had planned. At the time, student flocked to the communities because they were new and they had amenities lacking in closer projects. That has changed today.

“What’s happened is that virtually every market is overbuilt,” says Jim Short, president and CEO of Campus Living Villages, a Houston-based student housing developer and owner. “There are more beds on and off campus than there are students. Guess who’s hurt? The ones that are 3 to 5 miles away and built 10 years ago, which had good amenities at the time, but have been far eclipsed by the latest and greatest.”

Short adds that this has nothing to do with the recession, either. Too many people simply entered the market. Weakness is being seen in several markets such as College Station, and it stems mostly from this excess development.

“They talk about student housing being recession resistant. I think it’s just like any other section in the real estate market. If you overbuild it — it you put more beds or more units than what can be leased up in any given year — you’re going to have softness in the market,” says Barrett Kirk, senior vice president of acquisitions and development for Houston-based Asset Plus Corporation. Kirk mentions College Station, which added approximately 3,000 beds this year, as an example of this.

“Overnight, it went from being a great market to a weak market.” He adds.

The Lofts at Wolf Pen Creek also contains ground-floor retail space.

Despite the soft market in College Station, Kirk and his company have seen measured success there with one of their new off-campus projects, The Lofts at Wolf Pen Creek. Situated just a few blocks from the campus of Texas A&M University and right across the street from Wolf Pen Creek Park and Amphitheater, The Lofts at Wolf Pen Creek blends off-campus living with New Urbanism.

The community features loft-style units that contain such luxury finishes as higher ceilings, hardwood-style floors, track lighting and hi-definition TVs in every unit. The ground floor of the four-story building contains 9,000 square feet of retail space, which is occupied entirely by restaurant tenants. Honeybaked Ham will be open by press time, with Tutti Pasta and Red Mango opening in February. The final tenant space is currently vacant. Asset Plus was selective in the tenants it allowed to lease the space, since the restaurants are expected to add to the overall experience of the community.

“The way we always thought of the retail component was as an amenity,” says Kirk.

Retail space is not all The Lofts at Wolf Pen Creek has to offer. The community features two swimming pools, a 2,200-square-foot fitness center, a large clubhouse and other amenities that serve as what Kirk calls the “wow factor” when attempting to attract new residents. The amenities are also the reason many of those same people decide to renew their leases.

“When we go out and build a student housing project, the concept is that we are reaching out to kids who are leaving home for the first time. How do you make the kids comfortable, and feel safe and secure leaving mom and dad at the nest?” says Mark Lindley, senior vice president of Asset Plus’ construction division.

One change is that students today almost expect private bedrooms and bathrooms. “Putting them into a four-bedroom dormitory with cinder block walls and one bathroom at the end of the hallway is just not good enough for kids these days,” Lindley says. This has a lot to do with how many of these students grew up. The days of siblings sharing bedrooms and bathrooms are largely in the past for many families, and these children expect the same when they go off to college.

Another feature students expect today is a commitment to sustainability. The green movement is sweeping colleges nationwide, and students are expecting the same in their residences. Developers, in turn, are giving the market what it asks for.

“You have the ability to design to what the market is expecting, and the market — particularly the younger crowd — are looking at it from a sustainability standpoint,” says Dave Wallace, CEO of Wallace Bajjali Development Partners. “They are wondering where our planet is going to be. Where is our environment going to be? Where is our oil production — our energy production — going to be 10 or 20 years from now? It’s the first generation that is really focused on those kinds of issues.”

Heritage Quarters, located in Waco, is part of the Waco Town Square master-planned project The student housing community features easy access to Baylor University as well as downtown retail and entertainment options.

This means more than just making sure a project is LEED-certified. Students are interested in recycling programs, mass transit options near the community, activity programs to keep residents healthy and especially energy efficiency. For Wallace Bajjali’s most recent project, a community serving Baylor University known as Heritage Quarters, the design successfully merged students’ interest in efficiency with the developer’s goal of maximizing space. Wallace Bajjali only had a single city block in downtown Waco on which to construct the project. It responded to this challenge by utilizing a branded design from architectural firm Humphreys & Partners known as the e-Urban Student that answers the question of how to fit the most units possible on a small space. The four-story building contains 374 beds, which was done so by eliminating unnecessary and non revenue-producing spaces — a design idea that also saves an estimated 20 percent on utility bills for residents.

The Cottages at Lubbock features a resort-style clubhouse and swimming pool.

Sometimes, amenities are not necessary. Sometimes, the project itself is so different from everything else in the market that students are naturally drawn to it. This is the case with The Cottages at Lubbock, a 241-unit community serving the Texas Tech University community that opened this past semester. As opposed to the garden-style units many students are used to, The Cottages consists of 95 Crafstman-style houses each containing between two and five bedrooms. The community also features a plethora of amenities, most notable an 8,230-square-foot clubhouse with a screening room, a fitness center, a tanning salon, a business center, a billiards room, a computer lab, a swimming pool and a volleyball court.

“The Cottages of Lubbock offers students the best of both worlds: a neighborhood-style feel with resort amenities just minutes from the hustle and bustle of campus,” says Short, whose company recently acquired the community.

With off-campus student housing projects raising the bar to almost resort-level heights, schools are dealing with on-campus housing in a variety of ways. Universities still have the ultimate amenity — an on-campus location — and many see that as enough of an enticement to attract students. They also have the option to mandate students live on campus if occupancy starts to drop. Others schools, especially those trying to increase enrollment, are attempting to compete with off-campus housing.

“Universities that have the financial means to build new housing are doing so as a recruiting tool and are providing new developments with similar amenities — perhaps, not as grand — but the on-campus location can make up the differences,” Short says.

Some schools simply choose not to try to compete with off-campus housing. Developers, for obvious reasons, believe this to be a good idea. They believe the private sector is better capable of building student housing cheaper, quicker and better than a school could.

“The universities should be focusing on investing their capital on things that generate credit hours, whether that is laboratories, classrooms or other things of that nature,” Wallace says. “A dormitory does not generate credit hours.”

Wallace sees public/private partnerships as one way to please both sides when it comes to student housing. Typically, the developer will shoulder the cost of the project, while the university provides the students to fill it. If the agreement has a trigger in which the housing reverts back to the school’s control after a period of time, there is no downside for the school. With the recession causing enrollment numbers at colleges and universities nationwide to increase, demand for student housing will see a similar jump. Universities, which may be struggling due to depleted endowments, will be financially limited from spending money on new housing, setting up what Wallace sees as a perfect storm for these partnerships.

“You’re already seeing privatization of food and beverage operations [on campuses]...Student housing should be no different,” Wallace says.

While many developers are looking to the future for new designs and ways to do student housing, the traditional garden-style apartment complex has not been abandoned. There are situations in which the design fits, and many Texas schools, including growing UT campuses in Tyler, San Antonio, El Paso and Arlington, still have the available land to support these projects. For more established schools, the land has simply run out, and these projects are a way for student housing developers to get past the limiting factor of available land.

“There are still a lot of people interested in doing garden-style communities, but there is not the land to do it,” Short says. “No one wants to go 3 miles from campus today to build anything, so you simply can’t pencil out a deal with enough beds per acre. You have to start doing something innovative.”

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