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The Hive

Investors Gravitate to Pandemic-Proof Student Housing

Investor interest continues to gravitate to student housing. The pandemic proved the sector’s recession-resistant characteristics once again.

“The sector’s strong performance as compared to multifamily during the pandemic has also resulted in more capital gravitating to student housing as most investors like habitational real estate and have realized that a smart real estate portfolio asset allocation strategy includes a meaningful allocation of the residential allocation going to student housing, where cap rates are measurably higher than in multifamily,” says Frederick W. Pierce, IV, president and CEO, Pierce Education Properties. “It is an asset class that prospers during economic upcycles and even more so during recessions and down cycles.” 

But with every plus, there are accompanying minuses or challenges, most specifically in the student housing financing landscape. Until just recently, the agencies (FNMA, FHLMC) had imposed new COVID-19 reserves to student housing loan underwriting criteria. This was resulting in approximately 10 percent of loan amounts being set aside for 18 months in COVID-19 reserves, says Pierce.

This policy was implemented in summer 2020 when the fall university and student housing outlook was uncertain. Now that student housing occupancies, revenues and collections have proven strong during the pandemic, the agencies have only recently rescinded those additional reserve requirements. 

“In addition, banks and debt funds had stepped in to fill the agency voids such that those sources are temporarily more cost-effective than agency loans,” says Pierce. “We don’t expect that to last as we expect the agencies to start getting much more competitive with rates. The debt markets are now strong and plentiful for experienced student housing operators.”

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Frederick Pierce

About Lisa Brown

Lisa Brown has decades of experience in corporate communications and marketing management with organizations including Coldwell Banker Residential, Grubb & Ellis, Marcus & Millichap, NAIOP, SIOR and ALM. In those positions, she worked in conjunction with chief executive officers and chief marketing officers to create corporate messaging, cohesive branding standards, strategic marketing plans and thought pieces. Brown is a frequent speaker at industry events and an editing adjunct professor for an online course. She has a master’s degree in mass communications from San Jose State University.

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