Student housing REITs were recognized as a good investment as the larger schools packed their dorm rooms and apartment complexes with a higher demand for housing than could be met. A few decades ago investors saw the tremendous opportunities. With the current declines in student enrollment, the present situation leaves some investors wondering if student housing REITs are still a good option, but the current data suggests that at least in some sub sectors, it is, but it's important to choose the right REITs.
Student housing REITs are still popular
According to the Motley Fool, student housing is a less volatile investment as it is one of the REITs that is fairly recession proof. When hard economic times hit, there is an upswing in students returning to school. It provides a more reliable stream of cash flow for the REITs, increasing stability and confidence.
Which student housing sub-sectors are the best bet?
The Fool's analysis of the best sectors within student housing focus on REITs that hold investments or ownership in properties that are made to accommodate a high number of students. The more modern housing options intended for students are a more attractive alternative to dorm rooms, and they offer more amenities and the privacy that is often lacking in campus based housing. There is a trend in student housing that sees more students opting for private off-campus housing, as developers have invested in this specific type of private housing option. Alternative Investment Coach reports that most student housing REITs invest in schools that have larger student capacity. This helps to ensure that even during times of lower student enrollment, the demand for housing is the most likely to be strong. A review of the most recent analysis of the student housing REIT market suggests that those that focus on areas with larger universities are the safest bet.
What about the effects of the pandemic?
Student enrollment has declined in certain areas, and this has decreased the demand for housing in many areas of the nation. While the situation became sketchy from March of 2020 to the present, it served to lower the price per share of some REITs. This is good news for new investors as the prices are lower, and with the re-opening of schools across the nation represents an opportunity to buy at a good price and reap the benefits of a rebound. Barrons weighs in on the current situation, with a positive outlook on the status of college enrollment. As more schools re-open, the demand for student housing is more likely to return to its filled to capacity status. When we consider the number of business closures and the rising unemployment figures, it's been a trend for decades to see enrollment numbers increase as more people are returning to school to augment their employment skills and credentials, in hopes of securing better jobs in the future. School is an attractive alternative when the job market tightens and there are fewer employment opportunities.
Recommended Student housing REITs
While any investment represents a risk, it appears that there are a few REITs that are recommended for consideration because of their strong track record of good performance. According to Nareit, Campus Crest Communities, Inc. is an REIT that is focused on student housing construction that offers a quality experience for renters, making them more attractive over the more antiquated dorm rooms. CCC has been listed since 2004. The second recommendation is EDR, which went public in 2005, and prior to that maintained a decades long history of providing student housing. This REIT maintains good management of day to day operations and has been consistent in following its long term development strategy, so it's likely to be around for another 50 years, according to its CEO.
The Motley Fool's pick
Motley Fool recommends American Campus Communities, which is one of the largest REITs with a strict focus on student housing. They point out that the REIT owns 170 properties with a capacity for housing nearly 110,000 students. The properties offer a more modern alternative to campus based dorm rooms with more amenities and privacy with an average cost for rent that is estimated to be $10 more expensive than traditional student housing. This represents a value for all of the comforts gained, and most students/parents are willing to spring for this private option versus the stodgy room-sharing environment of the dormitory system. ACC has a strong track record of investment in development in both on and off campus projects, acquiring existing student housing properties and generating a high yield up to 6.75%.
Student housing REITs have been gaining in popularity over the past two decades with private housing offering a more attractive alternative to the less modern dorm rooms with shared occupancy. Trusts with a focus on student housing near geographic areas that feature larger universities and higher student numbers have been performing very well, as the demand for student housing in some of these areas is higher than the supply. This allows for less volatility in the market and a greater likelihood of stable cash flow, and more opportunities for expansion through acquisition, new construction, and partnerships with colleges and universities. The period of school closures and online learning alternatives has caused a dip in the prices for publicly traded REIT shares, and although this is still a factor that has caused a drop in share prices, it creates an opportunity for new investors to get into REITs for a lower investment cost. The outlook for a rebound is good, although there is no certainty about when things will return to normal. Those who invest now stand a good chance of reaping the benefits of their investments as the country opens up more fully and students return to school.
Written by Allen Lee
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