The pandemic hasn't slowed down Florida dorm-building by private companies
In July, Global City Development completed The One at University City, a $231-million, 1,244-bed private dorm across the street in Sweetwater from one of the state’s and nation’s largest universities, Florida International. Over their careers, the principals of Miami-based Global City have developed $10 billion in high-rise residential and other real estate, but this was their first dorm.
The project fit their development goals of aligning with a “public good” — education, in this case, says principal Brian Pearl. The money in student housing isn’t bad either. “For equity investors in the typical student housing deal, they can make 20%-plus a year,” he says.
That kind of return explains why developers and investors have poured into the private dorm market around Florida campuses. Since 2011, the state has added 40,000 privately owned, off-campus beds, second only to Texas nationally, according to RealPage, a property management software company. Florida universities have been “a popular choice” for developers, says Carl Whitaker, market analyst at Texas-based RealPage. “That’s not a terribly surprising trend though, as many Florida-based universities are among the nation’s fastest-growing,” he says.
Since 2011, Tallahassee has led the nation with 13,300 privately built off-campus beds. Another 1,600 will come by fall 2022, according to RealPage. Gainesville, over the same period, gained 8,400 beds off campus, including 2,600 this year, tops in the nation for 2020. The areas around the University of South Florida and the University of Central Florida each added 5,000 private beds since 2011.
After the Great Recession, dormbuilding’s seeming immunity from economic cycles drew institutional and international investors. Tenants are young, leasing windows short, turnover and wear-and-tear high, but enrollment was growing nationally and dorm rent tends to be parent-guaranteed. Plus, colleges weren’t building on-campus dorms as fast as they were adding students.
Developers stepped in and competed for students by offering luxury products — The One has a 5,000-sq.-ft. pool — that are a far cry from the rundown houses previous generations of students shared with several housemates. The new housing catered to young people who grew up without ever having shared a bedroom. The dorms offered fitness centers and — often — a bathroom for every bedroom.
Early this year, transaction prices per unit and per bed nationally were near records at $235,429 and $96,295, respectively, according to commercial real estate broker Newmark Knight Frank.
The sector, however, was seeing challenges. An amenity arms race meant buildings that were only a decade old were becoming obsolete. Rent increases slowed in markets with oversupply. The small fraction of student housing debt that had been turned into commercial mortgage-backed securities showed rising delinquency rates, especially compared to the overall apartment rental market. The rate rose to 3.8% in April, up from 0.2% in January 2018 — before popping above 9% in May amid campus shutdowns, according to DBRSMorningstar.
There also has been uncertainty over whether parents would pay for students to live in dorms while studying online. Meanwhile, a Florida congressman, U.S. Rep Al Lawson, a Democrat, called for private dorms to allow students to break leases without penalty. And the mother of a UCF student sued her daughter’s private dorm because it wouldn’t return rent after her daughter came home when the university went online. Private dorm owners, beholden to lenders, investors and bills for insurance and property taxes, lacked the flexibility that universities — supplemented by federal coronavirus aid — had to let students out of leases.
The sector’s prospects were said to be dimming. Midtown Campus Properties, a development vehicle allied with Miami- based Roger Development Group, in May sought Chapter 11 protection for Midtown and the 589-bed dorm project it was building near UF and Ben Hill Griffin Stadium. Roger CEO Oscar A. Roger, in a court filing, blamed construction delays from Hurricane Irma, labor shortages, disputes with its general contractor and, finally, the pandemic and the uncertainty over whether UF would reopen. Midtown was financed with $77.8 million in Florida Development Finance student housing revenue bonds. Efforts to obtain an interview with Roger Development were unsuccessful.
Midtown, however, appears a one-off. Florida dorm properties — and most nationally — have largely skated. “Students still wanted to be on campus,” says Gwen Roush, a senior vice president with DBRSMorningstar. None of the troubled loans DBRSMorningstar tracks is secured by Florida dorms.
Nationally, private dorms also benefited by picking up the displaced as colleges “de-densified” on-campus dorms. Those with a bathroom for every bedroom had value for students in the pandemic. At The One, just over half of the units are one-bedrooms or studios. “Highly unusual for student housing,” says Pearl, the principal with developer Global City, but “it played to our advantage with the virus.”
Pearl says he hoped pre-pandemic to open at 95% occupancy. It fell short but still “above” 90%. “It’s very good,” Pearl says.