Spring Break Means ‘Spring Bargain’ For This Campus Housing REIT

 In Campus Housing, Free Articles

Summary

  • At four-year public universities, 40% of students graduate with no debt, and of those graduating with debt, the average student loan balance is only $27,000.
  • Student loan default rates remain low, at roughly half the levels from two decades ago.
  • Today, college housing is like living in a four-star hotel.
  • Compared to the traditional multi-family REITs, campus housing is considered cheap.

While most college kids are thinking about spring break, I am sitting here at my laptop sweating out REIT picks, wishing I was sitting in the shade…

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However, if I am diligent with my job as a REIT analyst, I could possibly take a much-needed vacation somewhere soon. Of course, the key to success is selecting a basket of high-quality dividend paying stocks with a history of uninterrupted dividend payments.

Honestly, I am counting the days. I have written way too many articles over the last few months – over 1700 articles since 2010, to be exact. I’m long overdue for a few “boots on the ground” trips to Hawaii or Costa Rico.

Anyway, it’s time for spring break, and as I began to ponder my destination, I am reminded of all of the college kids (like my daughter) who are planning “fun in the sun”. I don’t know about you, but most of my kids have stashed away enough cash away for spring break.

In fact, the perception of increased student debt has been driven by private for-profit institutions. In the public four-year university markets targeted by American Campus Communities (NYSE:ACC) and Education Realty Trust(NYSE:EDR), the environment remains healthy. At four-year public universities, 40% of students graduate with no debt, and of those graduating with debt, the average student loan balance is only $27,000.

A close up of a map Description generated with high confidence

Student loan default rates remain low, at roughly half the levels from two decades ago, as evidenced by the chart below:

A close up of a map Description generated with high confidence

The composition of current housing supply in the U.S. creates significant opportunity for campus housing REITs. Until the mid-1990s, student housing was virtually ignored by property developers, who failed to see the opportunities to replace traditional dorms built in the 1950s to 1970s.

Most universities only provide housing for 20% of their students, traditionally freshmen. They force them out after that into off-campus housing, often dilapidated buildings owned by absentee landlords.

For campus housing REITs, like American Campus Communities, modernization is opportunity. Many colleges and universities outsource their food services and bookstores, so outsourcing their student housing isn’t as much of a stretch as it might seem. Campus housing REITs provide a modern, purpose-built product at comparable price points to obsolete existing product, and that is their value proposition.

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Modernizing student housing has mostly taken the form of new development, although some markets have buildings that can be renovated to meet student needs. Student housing isn’t just about real estate, it’s about creating an environment for academic achievement.

College students appreciate living in an impeccably maintained class-A community, and they respond positively to management’s organized alcohol-free events and zero-tolerance policies for property damage.

While some investors have expressed concern that rising tuition costs and the availability of online education could slow demand for new student housing, developers maintain that those issues are not having an impact.

Today, college housing is like living in a four-star hotel with resort-style swimming pools, tanning salons, fitness centers, sand volleyball courts, fire pits, cafes with wood-burning fireplaces, and bedrooms with walk-in closets and private baths. Heck, who needs spring break when you can live like this…?

A resort near the water Description generated with very high confidence

(Photo Credit)

American Campus “Consolidator”

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