If Jeff Holzmann were to grade the student housing sector, he’d probably give it an A+.
Holzmann is managing director of iintoo Investments Ltd., a New York City-based network for real estate investing. The online platform enables high-net-worth (HNW) investors and others to share ownership of commercial-grade properties around the U.S., with a minimum investment of $25,000 per participant. The platform aims for an average annual return on investment of 15 percent to 20 percent (net fees).
On behalf of investors, Holzmann’s real estate management company provides equity for multifamily, mixed-use, office, hospitality, medical and seniors housing developments. But it’s especially keen on development of student housing projects in states including Florida, Georgia, Louisiana and Wisconsin.
“We love student housing. We’re very big in student housing across the country. We’re actually quite a large player in the space,” Holzmann says. “We love it for the economics of it, we love it for the stability of it and, quite frankly, there’s a lot of opportunities for investors such as ourselves to participate.”
Those opportunities are fairly abundant. While development of student housing has fallen off its torrid pace of 2012 and 2013, the sector remains a draw for inntoo and other investors. In 2017, the number of student housing beds completed in the U.S. totaled about 45,500, with around the same number of beds predicted to be delivered this year, according to RealPage Analytics.
Holzmann says inntoo doesn’t jump at every student housing development that comes along, though. Each deal must be “underwritten to perfection,” he notes.
In a Q&A with NREI, Holzmann explains why student housing is his favorite asset class, why his company won’t get sucked into just any student housing deal and why he forecasts some near-term saturation and over-capitalization in the student housing sector.
This Q&A has been edited for length, style and clarity.
NREI: Is student housing your favorite asset class?
Jeff Holzmann: Without a doubt, student housing is No. 1 on my list. That’s me personally—that’s Jeff Holzmann speaking. I can tell you that as a company, we love those types of assets, but we’re not suckers. It doesn’t mean from an investment perspective that anybody who’s building student housing, we’re going to be all over it. I still have to underwrite the specific deal and make sure that it’s based on merit. We still have to go into that market—I’ll send somebody out, boots on the ground—to make sure that the college or university that’s right next door is experiencing growth in enrollment. I also would want to make sure that the market is not saturated. Somebody could be building a phenomenal student housing complex, but there’s absolutely no need for it because there are so many beds available in the immediate vicinity of the academic institution.
NREI: Why is student housing an area of focus for your company?
Jeff Holzmann: I’m personally invested in some of our projects in the student housing space. When I say me personally, I don’t get any discounts, so I’m investing at the exact same dollar amount that our clients are participating at.
I love student housing mostly because it’s a submarket of real estate within real estate. What does that mean? At the end of the day, you’re talking about a real estate asset where people live and sleep, but it doesn’t behave in direct correlation to the residential market in that area.
Let’s say the economy is in a time of contraction. People on the whole earn less money, which means they have less money for paying rent and other expenses. Well, guess what? The job market tends to be inversely correlated to the education market, so when the economy is contracting and people can’t find good, steady, high-paying jobs, what do they do? They go back to school, or they delay going into the job market and stay in school and get an extra degree or a higher degree.
So, if you’re sitting on a student housing asset that is in the immediate vicinity of a prime academic institution, you’re probably going to see a more stable return and stable demand even when the economy as a whole is in a time of contraction.
Another one of the reasons we like the sector so much is because this type of real estate asset has significantly less vulnerability. Significantly fewer people get up in the morning and decide to leave their academic institution in the middle of the academic year and run away from the liability of paying rent. When you talk about student housing, you usually rent out by the bed or by the room and not by the unit. So, even if one person moves out or one person is expelled from school, they’re a lot easier to replace.
NREI: What’s the typical dollar range you’re seeking for student housing deals?
Jeff Holzmann: With student housing, on a per-complex basis, you’re at the sub-institutional size. You’re not building a $650 million student housing complex next to a university in the Midwest. Those are not the economics. You’re usually talking about assets that are in the range of $20 million to $75 million—all-in total cost to build. We’re in the business of funding the equity piece, which is usually about 30 percent of the total cost, given a 70 percent LTV.
NREI: What’s your forecast for the student housing market?
Jeff Holzmann: It’s a market that’s currently experiencing growth. Some of it is obviously hyped, because we’re seeing so much demand. Over time, probably in a year or two, there’s going to be some saturation and over-capitalization in this market. Too many people are pouring money into this market, because they hear from other people that it’s a good idea, they read in the paper that it’s a good idea, but they don’t necessarily understand it.
Some sponsors think it’s a quick buck, it’s easy money. They’ll build to lower standards, but that will not survive, and over time the market will correct itself and find equilibrium. It’s a great market to invest in, but only with the right partner. Do not pour your money into just anything that has the name “student housing” on it, because individually it could be a bad idea.