Student Housing Gone Wild!

Implications: There are several reasons to consider the student housing and dormitory construction market as niche real estate investments that will continue to prosper despite the downturn we are currently experiencing.  First,there is a real shortage of dormitory space at both public and privately run campuses across the nation. Second, the college-age population is increasing and so is the number of individuals who will be attending college. 

Analysis: Third, the returns posted by three of the biggest REITs in the specialty student housing sector are impressive. American Campus Communities, Inc., GMC Communities Trust ,and Education Realty Trust, Inc. have all provided dividend yields over 5% to their investors. Perhaps the most attractive feature of this market segment rests with the indication that it may be much more resilient and less connected to the larger machinations of the U.S. economy as is the case with more traditional housing. Mr. Douglas Culkin, president of the National Apartment Association, stated in a recent interview about dormitory facilities--- "It's the fastest growing niche market in housing."

Despite a growing institutional presence, the student dormitory market is still fragmented and dominated by small, underleveraged companies, whose portion of the market would be very susceptible to takeover by larger and better financed developers and investors. Educating the institutional firms has also been a challenge and it was not until just a few years ago that student housing was even accepted as a distinct investment class of real estate.

REIT managers should place this asset group on their watch list.