Once considered a niche asset class, student housing is quickly becoming a darling for commercial real estate investors. Even institutional players have been eyeing dollar signs in the last several months. Last August, Blackstone Properties bet big on student housing when it completed its acquisition of American Campus Communities Inc., the largest publicly traded owner and developer of student housing in the U.S. As an asset, student housing tends to do considerably well during depressed economic periods, and since there’s an overwhelming consensus from both policymakers and real estate executives that a recession is poised to jump out any minute now, the interest isn’t all that surprising. What is surprising, though, is how technology and regulatory frameworks have enabled new forms of student housing ownership, putting student housing on the forefront for fractional ownership.
Fractional ownership, where multiple investors collectively own a single property or a portfolio of properties, is not a new concept in real estate. The idea led to the creation of REITs in the 1960s. While REITs are fund based, a public market version of fractional ownership, a private version has emerged as well. Thanks to new regulations around investment offerings, a number of sites have sprung up giving access to individual investments in properties without having to deal with issuing stock to the public. These options have gained popularity in recent years as a means for non-accredited investors to gain exposure to the real estate market without having to fork over huge amounts of capital. This new way for “retail” investors to find and invest in larger properties might change the competitive landscape for the student housing sector.
Unlike retail, office, or industrial properties, student housing didn’t traditionally offer the same shine as an investment hedge, for both institutional and fractional investors. For one thing, student housing properties are often smaller and less visible compared to office buildings or shopping centers, making it difficult for institutional investors to allocate large sums of capital to them. Also, students tend to be cost conscious so the returns may not have been significant enough to justify the investment. Student housing is also subject to more seasonal fluctuations than other types of real estate, with high demand during the academic year and lower demand during summer months. This created additional challenges for investors, as they needed to carefully manage their rental income and occupancy rates to ensure steady returns. In recent years, the student housing market has become more institutionalized, with larger investors, REITs, and private equity firms investing in the sector. This has led to increased capital allocation, more professional management practices, and greater scalability in the market.
Confidence in the student housing market has swelled. A recent report from JLL revealed that transaction volumes shattered records at the end of 2022, and the momentum was so strong that it nearly doubled from the year prior. “The fundamentals of student housing have never been stronger, which is why capital is flocking to the asset class,” said the firm’s Capital Markets Student Housing Team in a statement. Those fundamentals include increased demand as college enrollment bounces back from the pandemic slump, potential for higher returns as many areas around universities have constrained construction, and a stronger guarantee compared to other multifamily assets (remember that parents are often co-signers). “Many investors consider student housing recession-proof as every lease has a parental guarantee,” added the report.
Student housing concluded its best year on-record in 2022, but the hype for student housing as an investment only grows when you look at 2023’s pre-leasing momentum. A first-quarter report from Yardi Matrix shows that leasing for the 2023 school year is “proceeding at an impressive clip.” Institutional investor interest in student housing is slated to grow even more as interest rates settle down, which market watchers are anticipating will happen sometime this year. But where institutional investors go, individual investors tend to follow.
Amidst the onset of the COVID-19 pandemic and the economic panic that followed, serial entrepreneur Qian Wang had a lightbulb moment. “I wanted to democratize investing in real estate, and I knew that student housing is a safe investment, especially during an economic downturn,” said Wang, “because people go back to school to improve their job prospects or they recharge and decide to change their profession.” He told me that the main thing that had given so many investors pause to put their money towards student housing was because of the dense operational requirements to manage each property. In order to disrupt the traditional paradigm of student housing, technology would have to play a vital role.
In 2020, Wang founded Collabhome.io (“Collab”), a decentralized property management and investment platform. Collab recently qualified its first investment offering under Regulation A+ with the SEC which allows every U.S. resident 18 years of age or older to invest as little as $500 in one of their student housing projects. As of now, Collab is one of the first to open up fractionalized ownership to off-campus housing, but considering the meteoric growth the sector is expected to undergo, it’s not unlikely that other fractional platforms might catch on.
Whether investment is coming from institutional players like Blackstone or retail investors, increased investor interest signals that student housing is niche no more. However, the introduction of fractional ownership options also suggests that there is a growing market demand for this type of investment structure, which may be driven by changing attitudes towards real estate investment and the availability of new investment platforms and technologies. Overall, the ingress of fractional ownership in student housing reflects a shift towards more accessible and inclusive investment opportunities in the industry.