There are challenges and risks to any business, but student housing comes with a few unique worries. Risks run the gamut from project delays to foreign policy changes and nearly everything in between. Here’s how top firms are managing some of the biggest strains.
The Ticking Clock
The academic calendar will always be the biggest risk for student housing firms to manage. The first day of classes marks a hard and unforgiving deadline for every student housing property. Any bad news or unforeseen snag that hurts the lease-up process could result in empty units that are nearly impossible to fill after the start of the academic year.
“Students all move in at the same time and they all move out at the same time,” says Dave Borsos, vice president for the National Multifamily Housing Council. “You have a narrow window in which to fully lease your property for the year.”
Because empty units equal dollars lost, student housing managers have to make sure that all units are in perfect shape in time for the students to move in. And this is no small feat. Typically, prior year’s leases end on July 31 and new leases for the upcoming academic year start in mid-August. This means that student housing firms often have just two weeks to repair and turn more than half of the beds at their properties.
“The process needs to be carefully planned and managed and is typically outsourced,” says Fred Pierce, president and CEO of Pierce Education Properties.
Missing the mark means not only creating unhappy customers but also risking having even the smallest mistakes broadcast over social media. “A bad turn can not only cost money, but can also impact renewal and leasing the next year,” says Pierce.
The academic calendar also poses a special challenge for new properties that are just finishing construction. “If your new property is not finished when students arrive for the first day of classes… now you have to put those students up in a hotel,” says Bill Feinberg, partner with Feinberg & Associates, a student housing architecture firm. This can be a major inconvenience for residents and end up costing a pretty penny.
The current labor market is making it particularly difficult for developers to manage the calendar. All kinds of skilled workers are hard to find, but framers and drywall workers have been especially scarce. Work crews are smaller than usual, which means the work takes longer to complete. This scarcity often leads to new student housing developments opening weeks, even months later than originally planned.
“What the developer can do is to start construction plenty early, delay a project for an entire year if you can’t start on time and select a general contractor who self-performs sub-trades that are on the critical path schedule like concrete and framing,” says Pierce.
Going hand in hand with labor shortages and development delays is just a general escalation in the cost of student housing development. Labor and materials costs have risen, but the escalation in land prices has been particularly noteworthy.
“Getting sites is harder and harder to do in some of the major metro areas,” says Russell Berusch, president of Berusch Development Partners. “The cost of acquiring those sites is not feasible unless charge a certain amount and get to a certain scale.”
Further adding to the costs are higher-end finishes and amenities. To stay competitive in a crowded market, developers often pile on extra amenities into their new construction projects to attract residents. “You have your own bedroom and laundry in the suite, a kitchen with granite countertops and a yoga studio within walking distance,” says Berusch. “All these things add to the cost structure.”
Parking is another moving target. Too few spaces can lead to unhappy residents, but too many spells planning and programming inefficiencies. Moreover, a community with too many parking spaces may be left with a massive, concrete structure that can’t be used for much of anything else as students continue to transition to alternative transportation like bicycles and ride sharing services. Some companies are mitigating this risk by contracting with nearby parking garages rather than investing in on-site parking.
In addition to the usual worries about small markets and overbuilding, managers also worry about demand shocks that might affect enrollment numbers. The rising cost of higher education, the growth in online learning and shrinking school endowments and budgets are all areas of concern.
However, more recently, student housing executives have also begun to see vulnerabilities exposed by possible foreign policy and immigration changes. In recent years, many schools have benefited from foreign students strong interest in an American education. In fact, foreign student enrollments hit a high-water mark in 2015.
Changes to key policies could affect how many foreign students decide to attend U.S. universities, putting a crimp on a big source of demand for privately held student housing properties. Some sources indicate that this change is already beginning to occur, with fewer foreign students apply to U.S. colleges
“As the U.S.-China policy might change and relationships in the Middle East might change, that could affect the enrollment of students who come from other countries,” says Berusch.
Student housing providers take responsibility for the physical safety of their residents. New student housing communities feature smart security technologies like controlled-access elevators that only operate for residents. “You can’t make the elevator move if you don’t have that key fob,” says Feinberg.
Managers also educate their residents to be careful with the smart phones, tablets and laptop computers that many students carry around with them. “If residents leave valuable electronic devices in their cars and in easily visible locations, they dramatically increase the likelihood of theft,” says Pierce.
Other safety considerations are being worked into student housing plans from the get-go. The increasing popularity of mixed-use and town center development means a lot of blurring between public and private space. As a result, student housing planners and designers are think about new safety considerations. For example, outdoor dining areas are now bound by concrete bollards that could stop a swerving car.
Feinberg said he also designed a clock tower at one student housing property that is secured to prevent trespassers. “We used a security hatch that we would use in a prison,” says Feinberg. “The last thing we need is for someone to climb up there.”
Student housing companies have a lot of valuable data stored on their computer systems—and that information is vulnerable to hackers. A company’s proprietary corporate information is just the beginning. Company systems are also packed with employee information, vendor accounts, sensitive financial records and confidential resident information.
Student housing companies like Asset Campus Housing (ACH) are getting super serious about protecting their data, creating their own encryption systems to secure their data and constantly updating the systems to keep up with hackers’ ever growing ability to break in.
ACH also pays careful attention to the humans who operate the systems, to make sure they don’t take shortcuts around cyber security procedures. “We also know how important it is to properly train staff on safe cyber-security practices,” says Julie Bonnin, chief operating officer for ACH. “For example, we limit the installation of new software on company computers and regularly back up data.”