Flavor of the Moment: Student Housing

One sector of commercial real estate that has been bucking the downturn of late is student housing. The sector is considered largely recession proof for several reasons and investors seem to be noticing as student housing REIT's have been performing well year to date.

Reasons that student housing is considered recession resistant include:

• Students' parents are often required to cosign on leases. This puts the student and the parents on the hook for the rent, and reduces credit risk compared to traditional multifamily developments.
  
• Recessions often increase enrollment at colleges and universities as tighter job markets make going back-to-school more attractive relative to working. This leads to increased demand for the already scarce housing around many campuses.
  
• The current downturn happens to coincide with a trend of colleges and universities realizing the benefits of outsourcing the development and management of student housing. Developers seem to be doing a good job so far of delivering housing developments that have amenities that students want and are willing to pay for.
• Even though the credit markets are frozen it's still easy to get student loans that can help pay for the newest and best in campus living.
  

Perhaps the biggest reason that so many student housing developments are succeeding in today's environment is that they can be relatively easy to finance. Colleges and universities will often put up some of the equity required for these projects, and, even with its recent troubles, Fannie Mae has been actively lending on student housing ($264MM in the first half of 2008).

Llenrock Group