The higher education student housing facilities of today have come a long way from the crowded dormitories familiar to many prior generations.
At present, student housing more resembles the upscale apartment facilities being built in cities all across the country, with stainless steel appliances, workout rooms and common areas — often with free, speedy Wi-Fi throughout.
But there’s another, more fundamental change between the student housing of the past compared to the present, sources say. Increasingly, many universities have started to engage the private sector to develop, build and operate the housing facilities that are utilized by their student populations.
“Housing for universities used to be a big profit center. Then they used to mandate that the underclassmen had to be on the campus,” said John Wheeler, president of Grand Rapids-based Orion Real Estate Solutions LLC, the development arm of Orion Construction Co. Inc. “A lot of those rules have eased over the years, and if private development can answer the housing (needs), it seems to me that higher education (institutions) are taking their funds and building world-class scientific research buildings and educational buildings, cultural buildings, sports facilities. (They’re) in more or less of a public-private partnership with private development.”
Orion Construction and its real estate development arm in recent years have worked with myriad partners on the development and construction of thousands of beds for students near Grand Valley State University in Allendale and Michigan State University in East Lansing.
The company currently is working with Wilmington, N.C.-based Zimmer Development LLC on The Alpine, the second phase of a student housing project in Allendale that will add 432 beds spread over 108 units. That’s in addition to the 576 beds over 192 units the partners recently completed for the first phase, called The Lodge.
That level of new construction, coupled with significantly declining college enrollment nationwide, has some multifamily housing experts questioning the long-term viability of student housing development.
Nationwide, higher education enrollment declined 21 percent from 2011 to 2016 according to data from Arlington, Va.-based Associated General Contractors (AGC), a construction industry trade group. More locally, Michigan’s undergraduate college enrollment has fared far better, growing 7.6 percent over the same period, according to statistics from the state of Michigan.
The reasons for mostly flat or declining enrollment are many, according to sources, and range from parents having fewer children to a relatively strong economy that tends to favor college-age students entering the workforce rather than attending college or university.
“In spite of that, there’s still a substantial amount of development going on on campuses right now,” said Craig Black, an associate broker with Grand Rapids-based commercial brokerage NAI Wisinski of West Michigan.
Black, who works primarily in the multifamily investment market, was one of the panelists at a late-September talk on distressed commercial real estate hosted by the West Michigan chapter of the Turnaround Management Association.
Black believes the overall multifamily market in West Michigan remains healthy, but he expressed concern about the long-term viability of student housing development.
“Right now, the risk factors (for multifamily projects) are nominal. We’re in a very strong market,” Black said. “There’s always the suspect of overbuilding and if there’s an area of that market that’s creating a little bit of nervousness, it’s probably student housing.”
FINDING OPPORTUNITY
At Michigan State University, freshman students are required to live on campus in university-owned residence halls, and many opt to live on campus during their second year as well, according to Ray Gasser, director of residence education and housing services for MSU.
While acknowledging that the university has at times turned to the private sector to build and operate student housing, Gasser believes that providing MSU-owned housing is inherently linked to the university’s educational mission and helps students better acclimate to college life.
While the publicly-funded university continues to invest in infrastructure upgrades to many of its aging residence halls, Gasser concedes that MSU can’t compete with private developers who are building amenity-rich housing facilities aimed at students.
“We try to invest in things that will impact the success of our students,” Gasser said.
For private developers of student housing, that’s where they often seize business opportunities.
“Declining enrollment means that universities are competing for fewer students, and today’s students are looking for new, modern, larger facilities with amenities like classrooms, study areas, dining halls, convenience stores and outdoor amenities,” Jennifer Boezwinkle, vice president at Grand Rapids-based Rockford Construction Co. Inc., wrote in an email to MiBiz. “Many of Michigan’s campuses still have outdated dorms that need renovation or replacement to attract students.”
Rockford Construction has been involved in several student housing projects around the region. The firm developed, built and manages the Fulton Place mixed-used project that opened last year on Grand Rapids’ west side across the street from GVSU’s Pew Campus.
Boezwinkle said the project was built for a variety of tenants, adding that about 60 percent of current residents are college students.
An exact occupancy rate for the project was unclear, but Boezwinkle said “the project has done very well since opening.”
Projects like Fulton Place offer some of the same positive attributes as student housing, said Wheeler with Orion Construction. That’s because its mixed-use nature located near a growing downtown gives it secondary uses should college enrollment take a dip.
The projects that Orion Construction is building in Allendale as student housing — while successful — cater to different users, Wheeler said.
“It’s a target market. You can’t do anything else with that. It’s student housing, period,” Wheeler said of the Allendale projects near GVSU. “It’s not mixed-use, it’s not in an urban core — it’s out there in a field. That’s the volatility I think. Their service market is the amount of students that will keep going to that university. I can see that as being a volatile situation in certain cases.”
‘A CURIOUS EQUILIBRIUM’
Available data on student housing around the country also point to some uncertain conclusions regarding where the overall market stands.
An August report from New York City-based real estate analytics firm REIS Inc. notes vacancy rates of between 2 percent for properties that rent by the bed and 4.5 percent for properties that rent by the unit.
“We appear to have reached a curious equilibrium for Student Housing properties, at least when it comes to some subtypes,” according to the REIS report. “While these figures are relatively tight, we have scattered reports of weakness in Student Housing properties in the Midwest and other regions.”
To that end, Gasser with MSU points to one unspecified, privately-owned housing development in East Lansing geared toward students that he views as struggling. The project opened about seven or eight years ago, but in the interim several other projects have opened closer to the heart of MSU’s campus, he said, noting the project seems to struggle to attract new tenants.
“I already believe that there is an overabundance of student housing in East Lansing — or it’s getting very close,” Gasser said. “Every time something gets built up, it’s impacting somebody else. So yes, students will probably jump on whatever is new, but those properties that are a little bit older that can’t compete at the same level, they’re struggling a little more.”
That dynamic comes as no surprise to Black, the multifamily broker with NAI Wisinski.
“It’s one of those dilemmas where speculators speculate and it takes two to three years to build and get the product online,” Black said. “And by the time they do, if there’s economic changes in the market, if there’s student enrollment changes, (it creates issues).”
