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Apartments and Student Housing Attracting Investors

With back-to-school fresh in our minds, as real estate investors could we turn back-to-school shopping into back-to-school investing? Well it would seem that many real estate investors are doing just that.

As students of colleges and universities around the nation go back to school and move back into off-campus, private housing, real estate investors are busily watching occupancy rates and researching student population numbers and local housing needs to take advantage of the rental capital those students will pay during the 2016-2017 school year.

We recently described some of the merits of student housing as a real estate investment asset class. It would seem that because of these merits and others, student housing has drawn billions of equity in the recent months.

On August 22, National Real Estate Investor published the article “Demand for Student Housing Assets About to Increase.” The article reported statistics by Real Capital Analytics that showed $5.7 billion in student housing transactions between January 2016 and August 2016, which is $2 billion more than was spent on student housing last year during the same period.

According to the article, student housing properties were pre-leased on average at 83.4 percent as of June, a 15 basis point increase from the pre-lease average of June 2015. Once these properties’ occupancy rates reach their highs as the school year commences and investors can be fairly certain about their potential income for the year, additional transactions are expected to occur, increasing the already high equity totals invested in student housing.

Student housing is a niche market of the multifamily, or multifamily, real estate sector, a sector that continues to receive much attention from investors.

The 2016 second quarter edition of Exchange Quarterly reported that the multifamily sector was the overwhelmingly popular sector for 1031 exchange-qualified investment funds during the first half of the year. Of the $706 million equity raised in the first two quarters, more than half, $380 million to be specific, went into multifamily properties. The retail sector followed as the second most popular, receiving only a near $171 million. Based on these numbers, the popularity of the multifamily sector seems to be a lasting trend, not only matching the investment preferences of 2015 when apartments raised approximately 56 percent of the total equity raised for the year, according to the 2015 fourth quarter edition of Exchange Quarterly, but on track to exceed 2015’s total equity raised.

Furthermore, the sector is attracting new interest. According to Exchange Quarterly, 1031 rollover business only accounts for about 10 percent of the equity raised so far this year with the majority of the equity entering the market as new capital.

So whether or not the student housing niche is driving the popularity of the multifamily market, current investors are clearly attracted to the multifamily residential rental income. Maybe it is the 19.8 million undergraduate students projected to be enrolled in colleges and university by 2025, as projected by the National Center for Education Statistics. Maybe it’s the fact that homeownership has decreased for all age-groups since 1994, particularly for those between the ages of 35-44 for whom homeownership is down by 12.1%, according to the U.S. Census Bureau’s Table 19: Homeownership Rates by Age of Householder: 1994 to Present. Or maybe it’s because demand is high and supply is low.

Whatever reason draws each individual investor to the multifamily sector, it would appear that when PwC and Urban Land Institute surveyed and interviewed nearly 1,900 real estate affiliated experts for their 2016 publication of Emerging Trends in Real Estate, the experts forecasted correctly about the high prospects for multifamily properties in 2016.

This material does not constitute an offer to sell or a solicitation of an offer to buy any security. An offer can only be made by a prospectus that contains more complete information on risks, management fees and other expenses. This literature must be accompanied by, and read in conjunction with, a prospectus or private placement memorandum to fully understand the implications and risks of the offering of securities to which it relates. As with all investing, investing in private placements are speculative in nature and involve a degree of risk, including loss of your principal. Past performance is not necessarily indicative of future results and forward-looking statements and projections are not guaranteed to achieve the results described and your actual returns may vary significantly. Investments in private placements are illiquid in nature and there may be no secondary market or ability to sell the investment should the need for liquidity arise. This material should not be construed as tax advice and you should consult with your tax advisor as individual tax situations will vary. Securities offered through Capulent, LLC, member FINRA, SIPC.