Student housing is quickly becoming big business as higher education becomes more of a necessity in the current job market. Real Estate Investment Trusts (REITs) are increasingly turning to Public-private partnerships (P3s) to facilitate growth in the sector.
What’s a P3
The risks and rewards of P3s were extensively covered by Philadelphia Real Estate Council’s research fellow Sean Agid’s whitepaper. Agid outlined the three models P3s tend to fall into:
- The 501(c)3 Foundation – a university, non-profit organization and a developer form a partnership to develop or renovate student housing facilities. The non-profit owns the assets and finances them by issuing tax-exempt student housing bonds.
- Ground lease and Master Lease Agreements – the development is on university-owned land with a ground lease to the developer. The developer is responsible for the design, financing, development, construction and operations of the property. The university retains fee ownership of land and receives revenue from the lease payment
- Service Concessionaire Arrangement (SCA) – a university can contract with the private sector to design, finance, develop, and operate facilities for a specific period of time, while allowing the university to be heavily involved in the development of the P3. The key distinction is that the right to operate the concession and collect third party fees serves as collateral against any debt incurred within the agreement.
The whitepaper caters to the interests of universities, but a shrewd investor finds value in knowing the incentives for the potential partners.
As universities continue to grow, they need new streams of revenue. P3s help universities stay solvent and continue to thrive. Shrewd commercial real estate investors see it as an opportunity to extend their expertise and grow.
Michael Orsak, senior vice president of investments at Campus Advantage, sees partnerships with universities as the future of the industry. He estimates that between five to ten percent of on-campus housing projects get done through P3s in the U.S. That means the boom has yet to hit. An opportunity to break in on the market before it hits mainstream like bitcoin.
“Real estate fundamentals will tell you, ‘Location, location, location.’ You can’t get any better location if you’re a student housing provider than being on campus,” Orsak told National Real Estate Investor.
Leaders in the Field
American Campus Communities Inc. (ACC) and Education Realty Trust Inc. (EdR) are two companies at the forefront of student housing. As the only two student housing REITs in the country, they are setting the industry standard.
ACC’s portfolio consists of 23% on-campus assets. Its development pipeline includes 11 on-campus projects with more than 10,000 beds.
31% of EdR’s portfolio consists of on-campus assets that include partnerships with the University of Texas, Boise State and Northern Michigan to name a few. EdR is actively working with 35 universities throughout the country.
“I am pleased with the movement we are seeing in the on-campus market,” Tom Trubiana, president of EdR, said in an October news release. “The pursuit of these developments is very involved and time-consuming, and we’re excited to see our hard work paying off.”