Connection Between Student Housing Values & Elite College Football Programs
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If you watched the 2020 college football national championship contest, you probably weren’t thinking about investment properties as LSU handed Clemson a 42-25 whipping.
But maybe you will during next year’s title game…
Universities with big time college football programs also have valuable student housing. That was the finding of a recent report issued by CBRE. The commercial real estate giant discovered schools with high-profile football teams have experienced boosted enrollment in recent years. The influx causes student housing demand to increase, and along with it, property values.
Newer student housing builds resemble traditional multifamily in terms of function and quality, a move that is mainstreaming the segment with property investors.
Residential investors are taking notice. With economic uncertainty at a decade-long high, student housing is considered among the safest asset classes due to consistent demand.
Power Five Conference Schools Account for Nearly Half of Nation’s Student Housing Needs
The trend is demonstrable at schools in the Power Five conferences that regularly send teams to major bowl games–The Big 12, Big Ten, Pac-10, Atlantic Coast, and Southeastern conferences. The Power Five accounted for almost half of all US student housing transactions in the first half of 2019.
Jaclyn Fitts, CBRE’s National Student Housing Director, noted that ‘football schools’ experience a spike in applications following the NCAA National Championship game. In particular, Florida, Ohio State, Alabama, and other schools on Oddschecker’s list of national championship contenders are prime locations for student housing investors.
CBRE’s report found the cap rate at Power Five schools was 5.4 percent on average during the first half of 2019. The cap rate for properties surrounding schools with non-Division I football programs was 43 basis points higher. Lower cap rates are associated with lowered risk and higher resale values.
Power Five schools aren’t the only ones benefiting from the positive correlation between football and property values. Outside teams that break into the national rankings and receive media attention also see an uptick in investor interest. The report cites Boise State, Houston, Cincinnati, and San Diego State as examples. Each program has made bowl game appearances in recent years.
In general, the growing demand for student housing is having a spillover effect on the secondary locations of universities with elite football programs. Limited space on main campuses and surrounding downtown areas is driving the emergence of new satellite campuses.
Investors moving early into student housing at new campus sites could see significant appreciation as enrollment grows.
How Does This Affect Appraisers?
While student housing in secondary locations is likely to see an upswing in demand thanks to their predictable and stable cash flows, appraising such property can be difficult. This can present different challenges to appraising traditional housing stock, as its different factors can make a property more of less attractive to a student.
In some areas, there may be different zoning and permit requirements that need to be considered too. Properties may also have deed restrictions, although unlikely.
The greatest difficulty can come from finding equivalent properties to compare against. Areas that are only beginning to see a demand for secondary student housing locations may have little to no history to make comparisons with. Instead, appraisers may need to find similar properties in other similarly sized towns.
Many colleges and universities have a student housing coordinator, who may be a useful source of information when looking for other similar properties in the area.