Big Real Estate Companies Entering Student Housing Market

The Wall Street Journal has a story about large real estate companies getting into the student housing market in an effort to diversify and, hopefully, better weather future recessions:

Housing for college students, long dominated by small players willing to put up with beer pong and raucous parties, is attracting some of the biggest names in real-estate development…

The moves are designed to help the companies better weather the next economic recession by diversifying into areas considered less sensitive to downturns. During the real-estate crash, as prices of single-family homes declined and apartment landlords reduced rent, many student-housing landlords continued to raise rent, thanks to the generosity of parents and student-loan programs.

Meanwhile, established players in the market are on a buying spree in hopes of remaining competitive against the big-name newcomers. Last year, a record $3.7 billion of student-housing properties traded hands, up nearly 95% from the previous year, according to ARA Student Housing…

Developers’ heavy construction activity has prompted Freddie MacFMCC -0.70%which purchases student-housing loans from lenders, to turn somewhat cautious. “You can’t help but notice there’s a lot of interest now going into that space,” said John Cannon, head of multifamily sales at Freddie Mac, which purchased $1.7 billion in student-housing loans last year, up 55% from 2011…

A big reason why companies are diversifying into student housing is that they believe the sector is recession-resistant.

Kayne Anderson Real Estate Advisors, a private-equity investor with 15,000 beds, posted annual returns that exceeded 20% between 2007 and 2012, despite the economic downturn. The firm isn’t worried about oversupply.

“I don’t think we’re in a situation where you’re looking at overdevelopment,” said Al Rabil, managing partner of Kayne Anderson. “In almost all cases, you’re looking at a situation where development is just catching up in creating supply to keep up with demand.”