FINANCE Bloomberg Businessweek August 20, 201826
COURTESY CLS LIVINGmarkets have emerged: those with too many beds
and those with too few. At schools where the sup-
ply is tight—such as the University of California at
Berkeley—landlords “could light the places on ire
and people would still have to live in them,” says
Sam Bernstein, founder and chief executive oicer
of LoftSmart Inc., an online listing service for stu-
dent housing. But in places where the opposite is
true, such as the University of Missouri, property
owners have to be a lot more careful about location.
Price also matters. In recent years, fancy student
dorms have become a symbol of coddled youth and
a generation that’s taken on mountains of debt to
attend college. But there are signs that such luxu-
ries may not be selling as students (and their par-
ents) become more cost-conscious. The University
of Oklahoma in June was weighing whether to give
“scholarships” to students so they could aford rent
in a struggling development that’s owned by a pri-
vate nonproit but was built with inancing from
municipal bonds. It features a “blow-dry bar and
salon,” a cycling studio, and a Lululemon store.
Tenants turn over frequently, putting constant
pressure on landlords to ind new ones. The pro-
cess is like selling tickets to a cruise, says Robert
Bronstein, president and co-founder of Scion Group
LLC, which owns more than 60,000 beds nation-
ally. “Once you leave the dock, if you haven’t sold
the room, you’re not going to,” he says. At the same
time, building owners have to address the priorities
of increasingly savvy renters, and “it’s not handingIsaac Sitt and Elliot Tamir had been investing in
real estate for years when they stumbled onto the
idea. They’d bought a few apartment buildings in
Brooklyn, N.Y., in 2008 and, after the inancial cri-
sis, were struggling to rent units. So they decided to
put up ads at the nearby Wyckof Heights Medical
Center, expecting to lease to doctors. Instead, they
got medical students. With jobs scarce, tons of peo-
ple were going to school, they realized. Sitt remem-
bers thinking: Hey, this is a good business, even in
a downturn.
Today, Sitt and Tamir run Vesper Holdings LLC,
one of the largest owners of student housing com-
plexes in the U.S. If you’ve visited a college town
such as Athens, Ga., or Lawrence, Kan., in recent
years, you may have seen one of their properties.
They have names such as the Ivy and the Gramercy,
meant to evoke a boutique hotel. Many have pools,
study areas with free Starbucks cofee, and “gyms
that look like Equinox”—the kind of amenities, Sitt
says, that millennials really want. It’s been a lucra-
tive niche. One of the few dangers for the business
is bringing back the draft, he says, joking: “That
would be a problem for the college population.”
The other, he says, “is overbuilding.”
That second danger is no joke. Student housing
has become a hot real estate trade. Lured by stable,
recession-resistant returns, institutional investors
opened their wallets in recent years to build hous-
ing at or near universities. Too many of those dollars
lowed to projects around schools where there were
low barriers to development, such as Texas A&M
and the University of Oklahoma. Landlords in
those areas have had to ofer discounts and freebies
to get—in the industry parlance—“heads on beds.”
Some properties are going bust, leading to down-
grades of bonds that backed the development.
Through July, real estate fund managers had
raised $1.9 billion for student housing projects
globally, the same amount as they did in all of 2017,
according to data provider Preqin. As all this new
money chases deals, investors say two kinds of○ High turnover. Messy tenants. And stable returns for investors—at least for nowThe Big Business
Of Housing Students
“What we
find is that
students are
a little dirtier,
but they’re not
destructive.
It’s not Animal
House”⊳ Study by the pool