(Photo courtesy American Campus Communities)
College students are living the good life in high-end student housing.
LSU alumni who have not-so-fond memories of the quarters where they studied and slept during their years at the university can be forgiven for feeling envious of how some students live today.
In contrast to the typical dormitory or off-campus rental that provided a sparsely furnished, shared room and access to a down-the-hall bathroom used by a dozen other students, increasing numbers of undergrads are selecting modern apartments with their own well-furnished bedroom, private bath, fully appointed kitchen and living room shared by only two or three others.
Such is the lifestyle of students who occupy some of the newest and nicest off-campus housing around LSU—upscale apartments that are typical of student housing developed in the area during the past 15 years. And more such accommodations are on the way.
“Many college students today come from suburban-style homes where they were used to a lot of space and privacy, and maybe their own bathroom, and a lot of universities, for competitive reasons, want their students to have access to that kind of option,” says Eric Bronstein, executive vice president of The Scion Group in Chicago, owner and operator of upscale housing for university students around the country, including Baton Rouge.
Bronstein says growing demand for such digs coincides with the aging of residence halls built in the 1960s and ’70s. Baby boomers’ children (sometimes called “echo boomers”) and grandchildren are much less amenable to dormitory-style living and are more insistent on amenities such as flat-panel TVs, high-speed Internet access everywhere they turn and cushy study and lounge spaces.
Developers may throw in granite countertops, vaulted ceilings, outdoor pools, the occasional golf simulator and patios with BBQ grills to ensure that students take notice. (Poker rooms, rooftop hot tubs and golf simulators: Click here for a photo gallery of the luxury extras at selected posh student apartment complexes.)
Many universities view upscale residential options on or near campus as a way to keep students happy in an era of intense competition for top student talent.
Particularly in state universities that are strong in math, science and engineering, the international student population has grown rapidly. International students generally pay full tuition rates and are more likely to live in dormitories, so they tend to take up much of the on-campus residential space. As a result, in-state-tuition students and others are more likely to seek alternative housing.
Bronstein says all of these factors have combined to make LSU students a target market for owners of upscale housing. The Scion Group recently paid $32.5 million for the 158-unit University Edge apartment complex on McKinley Street from its Ohio-based developer.
“We’ve wanted to be at LSU for a while, and this was a good opportunity,” Bronstein says.
The company plans to change the name of the complex before new students arrive in the fall. Bronstein says the development is only 18 months old, and so needs few updates. With a mix of two-, three- and four-bedroom units, the complex has a total of 472 bedrooms, each with a private bath. Every apartment has a full kitchen and living room. Amenities include a fitness center, courtyard swimming pool, tanning bed, study lounges, game room and on-site parking.
The Scion Group provides on-site management, maintenance and security, Bronstein says.
RACKING UP RETURNS
For investors, upscale student housing offers an attractive average return. While a conventional apartment complex might achieve a capitalization rate—income after fixed and variable costs divided by the property’s value—of around 5%, high-end student apartments can rack up returns of 6% to 7% or higher.
The trend is “purely profit driven,” says Wesley Moore, a specialist in multifamily housing at Cook, Moore & Associates of Baton Rouge.
He says upscale student apartments generally rent “by the bed,” meaning that in a four-bedroom apartment, each student has a separate rental contract for his or her space, rather than having one contract shared by all four occupants.
Students and their parents like the fact that they will not face added costs, or liability, if one of the apartment mates moves out early or causes damage to the space, he says.
Apartment owners, meanwhile, take in monthly revenue of $1.50 to $2.25 per square foot. “Even the really nice [conventional rental] units downtown don’t get rents that high,” Moore says.
On the downside for owners, turnover in student housing tends to be high. Most students do not return to the same apartment year after year, and vacancies midway through a year can be hard to fill. “Profitability depends on keeping them full,” Bronstein says.
But the reward for owners in the Baton Rouge area can be revenue of up to $3,000 a month for a four-bedroom unit.
The economics of by-the-bed rentals have made their construction and operation into a burgeoning industry.
The Scion Group, which started out 15 years ago as a student housing consultant to universities and developers, now focuses on owning and operating by-the-bed housing and has a portfolio that includes more than 18,000 beds on or near 140 campuses.
The 472-bed University Edge is a small complex by Scion’s standards—the company prefers to have about 1,000 beds per location—but Bronstein says it represents a toehold in the market that may lead to expansion if opportunities arise.
Moore says the current local inventory of about 1,800 apartments that rent by the bed could grow sharply in the near future. Almost 800 units are under construction, and another 660 apartments are on the drawing board, he says.
All the developers are out-of-state companies, he says, that have similar projects under way around the country.