RALEIGH, NC - The Preiss Company, one of the nation’s largest and fastest growing student housing owners, developers and managers, announced that it transacted a record $320 million in student housing investment in 2013 and a total of $431 million since the fourth quarter of 2012. Investment activity by the company and its partners in 2013 included acquiring seven properties in close proximity to four different campuses, refinancing five existing properties and upgrading six properties.
“An in-depth understanding of what students and parents view as important in their leasing decision-making process is the foundation for optimizing returns”
“Last year was a great year for nimble owners/operators,” said Donna Preiss, company founder and CEO. “We believe 2014 will be a transition year for the industry, which creates new opportunities, especially for entrepreneurial companies.
“We expect to see a change in the mix of participants in the student housing space in 2014,” she commented. “Rising interest rates, which are expected to increase as the year progresses, will put upward pressure on cap rates, making acquisitions more difficult to pencil out. Wall Street also currently is bearish on our industry with publicly held company stock prices down significantly. These factors will likely reduce the pool, as well as change the mix, of potential buyers.
“Right now, there is a noticeable amount of high-end product, both existing and under development, being marketed for sale,” she said. “Also, there is a sizeable supply of mid- to lower-price student housing in need of significant renovation dollars. More product on the market, along with higher interest rates, will put downward pressure on pricing. With all these changes, finding the right opportunities will be more challenging and, we believe, more rewarding. At this time, we consider the top acquisition opportunities in 2014 to be value-add properties that need renovation investment and strong management and there are a substantial number of properties that fit those criteria.”
Preiss noted that should cap rates tic upward as a result of the expected rise in interest rates, the development picture will likely slow. “Like any real estate class, some markets are overbuilt and some currently active developers/investors will look at other classes at this phase of the cycle. Also the barriers to entry for student housing, even where land is at a premium, are not always as high as they appear on paper. Finding and developing the right site requires patience, understanding of the market and, of course, location. With so much change occurring, companies with speed, flexibility and strong operations will be best prepared to respond.”
“An in-depth understanding of what students and parents view as important in their leasing decision-making process is the foundation for optimizing returns,” she said. “We conduct a great deal of parent/student research to help guide our acquisition, development and renovation programs, as well as how we operate our properties,” she said. “It’s no surprise that fast Internet service is number one for students. Other top preferences include a top-notch pool and pool area, multiple media outlets and places to study, both privately and with friends. Parking is becoming more important every year.”
Preiss remarked that day-to-day operations will be even more critical in 2014. “The biggest problems facing student housing last year were excellence in operations and poorly maintained properties. There is increasing demand for quality, third-party management. As a result, we have become more aggressive in seeking third-party management opportunities.”
In 2013, The Preiss Company acquired a total of seven off-campus properties located near the University of Florida, the University of North Carolina Wilmington, the University of Texas at Austin and the University of North Carolina Charlotte. In addition, the company is heavily involved in the operations of its first student housing facility on the West Coast at San Diego State University and through an affiliate it took over management of a property at Ole Miss at the beginning of 2014. The company invested significantly in upgrading its properties near the University of Texas, University of North Carolina at Charlotte, and the University of Florida. “We are finalizing plans to renovate our facility at Clemson University and reviewing all of our other properties to ensure they meet our students’ expectations and our standards. Well-maintained properties help attract students but strong management keeps them coming back,” she said.
“Last year our portfolio reached 96.7% occupancy for the 2013-2014 term and achieved a 3.4 percent increase in rental rate over the prior term. Those results played a key role in adding eight new management contracts in 2013.” Currently, 30% percent of the company’s portfolio is third-party managed.
“Good investment opportunities will be out there in 2014. In most situations, off-campus housing is a better value for parents and more desirable to students than on-campus housing. Finding universities with continued growth or markets where certain niches are underserved is our focus. We will remain aggressive in seeking new acquisitions, developments and third-party management in 2014. We have a substantial pipeline in all three areas but have not set a specific target. Flexibility and speed are the key factors in 2014. We have access to capital and the bench strength to expand as much or more as we did in the past year. We would like to in-fill in some of our existing markets, as well as continue to expand nationally, now that our operations stretch coast-to-coast. We are patient investors but can move very rapidly when the right opportunities arise. We have a great team in place, a strong strategic plan and a solid group of investment partners. In a transition year like what we anticipate in 2014, we intend to be flexible and opportunistic in response to what we see as a rapidly shifting market.”