November 30, 2020

Corona-Proof

The pandemic hasn't slowed down Florida dorm-building by private companies

Mike Vogel | 10/28/2020

The occupancy success was repeated throughout the sector. Treo Group, for example, opened a 602-bed student housing community, Vox Tallahassee, in August with 99.7% occupancy, says Carlos Ortega, principal of the Miami-based Treo. “Fortunately, student housing has once again proven to be a very resilient asset class,” Ortega says.

The pandemic has affected the owners’ ability to push rents, however. Overall at The One, Pearl says, rents came in at 5% to 6% below expectations. “Every market is really its own submarket,” says Ryan Lang, a UF grad and vice chairman and head of Newmark Knight Frank’s student housing division in Austin, Texas. For instance, a number of developers and investors are interested only in dorm projects near number of developers and investors are interested only in dorm projects near to major athletic conferences. Private dorms within a mile of Power 5 conference universities command an average price per bed 30.9% higher than other dorms, according to Real Capital Analytics. The FIU Panthers compete in Conference USA, but The One has a rooftop deck overlooking the football stadium. “We’re very selective. It’s basically right across the street from the campus,” Pearl says. “There’s no property closer than ours.”

The One was financed with $231 million in private activity bonds, the same tax-exempt, government-sponsored debt that passenger rail company Brightline uses to construct its Florida rail lines and Las Vegas-Southern California train line. The bond issue for The One, offered in 2018, was one of the largest of that financing type for off-campus housing in the nation. The bonds mean lower interest costs for Global City. As a condition to get 100% financing for the project, The One — really, the bondholder owners — will make annual payments to FIU that will fund $50 million in scholarships over the 40-year life of the bonds and turn over the dorm to FIU in 2058.

There’s so much development in Florida and the nation that some fret about overbuilding. David Druey, regional president for Centennial Bank, which is lending to developer Treo for a new Vox Miami student housing project, worries about the staying power of the student market and likes to see a secondary market that can be tapped for tenants if students don’t materialize. Developers, looking for a fall-back market, design projects to appeal to both young professionals and students.

Lang, head of Newmark Knight Frank’s student housing division, says that looking forward, Florida “is in a pretty good spot.”

Berkadia, another commercial real estate broker, projects the state will add 23,000 students over five years — third nationally, in line with its population rank, behind California and Texas.

Pearl and Global City are looking for more student housing development projects. They bring in development fees, decades of asset management fees and “we’re able to pay back our investors at good returns.”

Public-Private Partnerships and Student Housing

Florida is a national leader in public-private partnerships (P3s) to accelerate road construction. Think I-595 in Broward, the PortMiami tunnel and I-4 Ultimate in Orange County.

Fewer P3s have emerged to build on-campus student housing. Florida Poly and the University of Central Florida have used P3s to build dorms. Florida State has one for its 400-bed dorms underway at its Panama City campus. The University of South Florida won an industry award for the P3 that added 2,171 beds in Tampa.

But compared to some other states, Florida’s universities haven’t given P3s a big embrace, says Ken Artin, an attorney with Bryant Miller Olive in Orlando who works on P3s and financing for higher education projects.

In general in a P3, a university leases land to a private developer, and the developer uses the university tie to raise money from investors or to borrow from lenders to build, own and operate the dorm. The developer is at risk for construction overruns and revenue shortfalls but gets to keep the profits after making lease payments to the university. The university gets its housing need addressed while focusing instead on education.

Last year, a $250-million student housing complex deal at the University of Oklahoma blew up with the owner accusing the university of betrayal. The incident gave pause across the industry. In Florida, there’s been no disaster. However, a 410-bed dorm opened in 2016 and built in a P3 at Florida International University’s waterfront Biscayne Bay campus has underperformed. Moody’s in January downgraded the debt on it to Ba3 with a negative outlook. “Operational challenges” — such as rents falling short of goals — have limited the dorm’s ability to cover debt and led to a weakened balance sheet, Moody’s said. In the last academic year, performance was improving. “We finally found the right formula,” says Andrew Naylor, FIU’s senior director of housing and residential life, “and then COVID hit.”

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