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Is There a Student Housing Bubble?

Student Housing Bubble

Digested from Bloomberg Businessweek

Oversupply and declining demand give some pause as they evaluate investments in student housing. But there are still reasons to be optimistic about the sector.

Money continues rushing into the student housing space. 

Bloomberg’s Noah Buhayar, Kristy Westgard and Gillian Tan report that through July, real estate fund managers raised $1.9 billion for student housing projects. That was the same amount they raised in all of 2017, according to data provider Preqin.

“As all this new money chases deals, investors say two kinds of markets have emerged: those with too many beds and those with too few,” Buhayar, Westgard and Tan wrote.

At schools without enough supply, student housing operators can almost name their price. In oversupplied markets, operators are offering giveaways to attract students. 

“Some properties are going bust, leading to downgrades of bonds that backed the development,” Buhayar, Westgard and Tan wrote. “Now, veteran investors in student housing say they’re being careful about their next moves, even as money continues to pour into the industry.”

But there are also still some positive signs for student housing. Despite the aging of millennial cohort, enrollment should increase three percent by 2027.

“Many public universities are also looking to tap the private market to meet the housing needs of students, so they can devote resources to other priorities,” Buhayar, Westgard and Tan wrote. “One recent proposal from the University System of Georgia would have a private company maintain more than 12,000 beds at five schools around the state.”

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