Student Housing Business • September/October 2021 • Page 54

INVESTMENT PREVIEW SHB : Will Q4 2021 be slower than a normal (e.g. 2019) fourth quar-ter sprint, or will we see record volume? Sitt : I deﬁ -nitely see the velocity continuing. Wellar : I think you will see more seller activity DOUGLAS SITT as cap rates Student Housing continue to Specialist, compress. Rittenhouse Realty Baird : I be-lieve you will see a similar trend to 2020 with the fourth quarter being the strongest quarter of the year. Rent rolls will be proven out and student housing continued to prove that it is one of the most resilient asset classes in real estate. With a pent-up demand out pac-ing the supply of deals, Q4 should see record pricing for student housing as capital markets have continued to warm up throughout the year. SHB : How aggressive are buyers being with offers? We hear it is a “best and ﬁ nal” environment where many properties are closing at higher than expected prices. Lyons : Buyers are very aggressive on quality assets that are newer construction within walking dis-tance of Tier 1 universities or high-growth Tier 2 schools. The best and ﬁ nal rounds in those scenar-ios remain ultra-aggressive. This trend is limited to those product types and markets, however, as the secondary and tertiary schools have much less interest at the mo-ment and a signiﬁ cantly shorter list of potential buyers. Many of the properties that meet the latter criteria are either sitting on the market with little to no interest or owners are just waiting on the sidelines for the overall environ-ment to improve before listing their property for sale. We expect this will start to change for the bet-ter in the second half of 2022. Repetto : Cap rates feel like they are compressing on a weekly ba-sis. The most sought after proper-ties are going through multiple best and ﬁ nal rounds and the buy-ers are condensing due diligence periods to improve their offers be-yond just pricing. SHB : What types of sellers are in the market? Fitts : The biggest group of sellers are those who would have sold in 2020 and merchant builders. They deﬁ nitely did not want to transact with the uncertainty of COVID. Those assets have come to market in 2021. We are also seeing sellers who have acknowl-edged that there is some cap rate compression in student housing as more investors are looking to alternative asset classes. These sellers want to sell into an attrac-tive market. Across the spectrum, we have seen aggressive best-and-ﬁ nal offers. Compared to years past, excluding COVID, bidders seem more aggressive and capital seeking investment is getting very competitive. Baird : The landscape for sellers is very similar to what we have seen historically. Unless an owner has set a long-term horizon be-yond the next few years, everyone should be looking at their port-folio as a sales opportunity given the abundance of capital chasing the limited number of deals on the market. Wellar : We are seeing properties from mer-chant devel-opers; there is a hangover of deals that KEN WELLAR should have Managing Partner, sold during Rittenhouse Realty COVID. Lyons : There are a lot of develop-ers cashing out, including a huge number of projects that were built in that 2016 to 2018 timeframe and might otherwise have sold in 2020. There are also owners of high-quality product that are looking to capitalize on the over-all lack of available supply in the marketplace. We see a short list of very well-capitalized buyers, many of whom are backed by for-eign investors who have a strong desire to invest in the space, all trying to buy the same type of product at high proﬁ le schools. Most of the owners who do not meet these criteria are still on the sidelines waiting for the dust to settle and the market to normalize back to where it was prior to the pandemic. SHB : We’ve seen a few new en-trants to the space this year. What is your experience with these groups? Why are they entering? Katz : In view of interest rates be-ing at an all-time low, especially with ﬂ oating rate debt, market-54 September/October 2020 StudentHousingBusiness.com