Top 4 Questions to Ask When Underwriting Student Housing Opportunities

Underwriting Student Housing Opportunities: 4 Key Questions for Investors

Student housing is a complex and evolving sector of commercial real estate, with each market presenting unique conditions. For investors, underwriting student housing opportunities requires a keen understanding of market-specific factors that influence demand and supply. This guide highlights the four essential data points every investor should consider to make informed decisions in the student housing market.

1. Understanding Enrollment: Assessing True Demand

Enrollment is a primary factor when underwriting student housing opportunities, but it can be misleading without the right context. While large enrollment numbers can imply strong demand, universities with satellite campuses or expanding online programs can skew these figures. For investors, it’s essential to identify the number of students physically attending campus, as this directly impacts demand for off-campus housing.

Key Takeaways:

• Differentiate between total enrollment and physical campus attendance.
• Consider online and part-time student enrollment trends.
• Check for official university reports or market studies.

2. Evaluating Existing Supply: On-Campus and Off-Campus Inventory

Next, assess the current supply of available housing options, both on-campus and off-campus. This includes the number of on-campus beds, recent changes in supply, and the types of properties (e.g., urban high-rises, mid-rises, garden-style developments) available. These elements are crucial for determining how competitive a market is and what type of housing is most in demand.

Factors to Consider:

• How many on-campus and off-campus beds are available?
• Recent changes or expansions in housing supply.
• Property type and proximity to campus—often a decisive factor for students.

3. New Supply Pipeline: Forecasting Future Growth

A key aspect of underwriting student housing opportunities is to analyze the future supply pipeline, as new developments directly impact market balance. In recent years, the number of new beds has decreased compared to previous periods, though some markets are still seeing substantial construction. Investors should review local construction permits, planned developments, and trends over the past five years to predict how incoming supply will influence demand.

Key Insights:

• Average of 38,000 new beds delivered annually in recent years.
• Local markets may vary in construction activity.
• Anticipate market saturation risks in areas with high pipeline volumes.

4. Calculating Surplus Demand: Identifying Growth Potential

A straightforward method to gauge growth potential in a student housing market is to calculate surplus demand. Start by subtracting part-time students, on-campus beds, off-campus beds, and the anticipated new supply from the total enrollment. This calculation helps determine whether a market is already saturated or has room for growth, aiding in more accurate underwriting of student housing investments.

Steps to Calculate:

• Total Enrollment - Part-Time Enrollment - On-Campus Beds - Off-Campus Beds - New Supply = Surplus Demand
• Markets with a positive surplus demand may present growth opportunities.

Final Thoughts on Underwriting Student Housing Opportunities

When underwriting student housing opportunities, focusing on these four data points—enrollment, existing supply, new supply pipeline, and surplus demand—will allow investors to make more strategic and data-driven decisions. This approach not only minimizes risk but also clarifies market complexities, helping you navigate the nuanced demands of each unique student housing market.