CrowdStreet’s Darren Powderly is joined by Brent Little, President and CEO of Fountain Residential Partners, to discuss important topics in student-housing, including why it has historically been recession resistant, how it differs from multifamily in terms of collections, and how colleges in the time of Covid are decreasing on-campus capacity, pushing students toward these student housing options, increasing demand.
Darren Powderly, Co-Founder & VP Capital Markets
CrowdStreet
CrowdStreet
Darren founded CrowdStreet in 2012 after identifying the need to radically improve people's access to commercial real estate investments via technology. Over his 20+ year career, Darren has transacted billions of dollars’ worth of commercial real estate investments and enterprise software contracts. Darren is a driven leader who loves building relationships based on mutual success. In addition to building businesses, leading teams and advising a prestigious list of national clients, Darren has personally owned commercial real estate, syndicated investment groups and developed properties from the ground up.
00:00:04 Hi everybody, this is Darren Powderly. Welcome back to StreetBeats. Today I'm here with Brent Little. He is the co-founder and president of Fountain Residential in Dallas, Texas. Uh, Brent and his firm specialize in student housing, so we're gonna dive deep in the student housing right away. But Brent, welcome to StreetBeats and please tell us a little bit about yourself.
00:00:23 Sure. Thank you, Darren. I appreciate it. And, um, I started actually on the construction side of the apartment business back in 1984 with the Trammel Crow companies here in Dallas, and worked my way up through the eighties and the nineties through construction, and then started moving in, in the late nineties into the development business with groups like J P I, which at that point was Jefferson Properties and others throughout the United States. And, uh, starting in 2000, I took over J P's student housing development platform and then moved to place properties in 2005 and took over their off-campus student housing development platform from 2005 to 2009 when we were the largest student housing developers in the country. Since then, we started Fountain Residential Partners in 2009 and 2010, and since then we've developed 24,000 beds across the United States, over 1.5 billion worth of student housing development. And, uh, we follow 238 markets across the United States.
00:01:28 That's interesting. So, I mean, can you give us some high level data points? I think a lot of people are, um, are wondering about student housing in today's market, right? Um, you know, our kids going back to school, you know, our, you know, our schools opening up. Like what are the big trends? What are some of the observations as you study this, these markets and the data that, that you, that drive your decisions? What are some of the big themes that, that, uh, people should be aware of with regard to student housing investments?
00:01:57 I think one of the most interesting data points to look at right now is in the last three recessionary periods, and I'm talking about in the nineties and the early two thousands, 2008 and 2009. If you look at, uh, enrollment of major universities across United States, you see these inflection points where they actually spike upwards during these recessionary periods. And that's for a lot of reasons. You have people that are in school that decide not to graduate and to stay in school because there's not jobs a avail available for them when unemployment is high. You have people that decide, like one of my daughters that says, I need to go get a graduate degree if I'm going to be employable and I want to move forward in my career path. And then you have other people that say, there's nothing out there for me now. So I, I just, I need to get more education.
00:02:50 I need to look better on indeed than I do today. It's a competitive marketplace, and so they're either staying in school or going back to school and you see enrollments increase. Now, enrollment isn't the only metric that we look at. In fact, we've seen schools where enrollment is decreasing, but there's still latent demand for new product usually because of high barriers to entry. So one of the places that we really like to go is high barrier to entry markets where it's more problematic and more difficult to find land, and especially find that land next to campus.
00:03:24 I've had two or three different downturns now in my career, but, uh, I was at that age. Your daughter's probably at now, but you know, the, the Y2K and and.com blow up. And, and so many of my friends were going back to school. You know, we lived in San Francisco at that time, and, you know, the software industry was getting blown up pretty heavily. But yeah, it is very, very common. That is a demand driver, uh, for student housing. And the, one of the things that make it recession resilient, uh, and a time like this,
00:03:55 You know, as a father of three, and I put three kids through college. Uh, I remember when I was at J P I, this was back in the late nineties and we were building in the Austin market mm-hmm. <affirmative> in the Austin marketplace. We were building one of the nicest, newest conventional projects there on Congress Street. And we saw kids driving up to it that were students at the University of Texas and Austin pulling up in their Acura NSXs to our brand new project that was the highest rents in the marketplace. When something's going on here, <laugh>. Yeah. We need, we need to understand this. And, and when you looked at conventional apartments, those would be a thousand dollars a month plus utilities, plus furniture, plus everything else, all these ads. And so the thousand dollars per per, uh, month rent became $2,000 a month on a per person basis.
00:04:49 Mm-hmm. <affirmative>. So the great thing about the student housing product is that you build that and it's all inclusive. It includes the 55 inch flat screen, the wifi, the cable tv, the internet. Yeah. So it's a phenomenal package for the consumer. And also we use parental guarantees on all of these leases. So it's not an 18 to 22 year old. They, they do sign on the lease because they're adults, but they have parental guarantees behind it. And we've seen, once again, comparing to the conventional market, there's been some issues with collections in the conventional market with those parental guarantors behind it. We have seen no drop off year over year in the student housing business for collections at all. And our occupancies have been fantastic. You know, we consider 95% and above to be full. And, uh, you know, in Fayetteville, Arkansas where we're, we have a project that we're doing a rehab on, uh, being raised on CrowdStreet right now, that market's 95% and above, rents are projected to grow 2.6% this year.
00:05:53 I mean, all of these markets, there was no decrease in enrollment there, it actually increased slightly over the last year. So all of these metrics that you're looking for, big s e c schools, tier one universities, flagship universities, like the University of Arkansas, it checks all of these boxes. And that project is a rehab that's not going to be completed until 2022. And by then, hopefully we'll have, um, you know, vaccines, coronavirus will be over, we'll be onto something new, <laugh> and, uh, yeah. And, and, and the air will be cleared. But even with that, it was really interesting because obviously we didn't know what was going to happen back in February, March, April of this year. A lot of kids went home for a short period of time, moved back in with mom and dad for a few weeks. Then after a few weeks, literally we saw them all come back and all those kids want to be back together.
00:06:48 Uh, even if, uh, we have a project in Amherst, Massachusetts that we open this year, and they're, everything is 100% online and we leased up to 98% occupancy on our student beds there. Wow. Even with 100% online, because all of those kids, they still want the college experience, even if they can't go on the college campus. There's another, uh, chapter to that story. We actually built 351 beds and we occupied 404. We had 50 bedrooms that the students decided to double up in. And so we actually occupied over 50 more beds than we built by doubling up in the bedrooms even during covid, because there, and this is another tailwind behind the university, uh, uh, b behind the university product, is that they are densifying what they're doing on campus and pushing thousands of more students back off campus. Only 22% of all full-time undergraduates can be housed on campus anyway. Mm-hmm. <affirmative>, so we're already housing 78% and more have been pushed off campus.
00:07:54 What about the future? Where do you think the future of student housing goes, you know, a couple of years out from now?
00:08:01 You know, looking at, at the actual physical property that we're building now? Um, y you, you'd be amazed, I don't know if you've seen a, a recent student housing property that's been built off campus, but I call them condo light finishes. You know, it's granite countertops, stainless steel appliances, faux wood flooring, and, and the, the wifi architecture that we put into these is, is very, very important because everything the kid, the kids do is online. You know, they have six devices each. So, so in a four bedroom unit with four people there and six devices each, we've got 24 devices per unit times 200 units that, that we have to have full capacity for.
00:08:45 That's a big internet pipe.
00:08:47 It's a huge internet pipe. So, so that's not going to go away. It's going to get even more as we move forward. But believe it or not, not the number one amenity that we have right now is study rooms. It's, it's study rooms that we put in, in the clubhouse, in the leasing office, and now we put them throughout the buildings. So there's scattered site throughout the buildings, and there are different types. We'll, we'll have some that have whiteboard in 'em, some, some that have plug and play and wifi on the TVs. We've done them, some that are art rooms. It depends on what kind of university it is.
00:09:22 Any specifics in terms of like continued population growth, those key metrics that, that you, uh, are tracking, uh, across 200 and and 30 or so markets nationwide that, that you believe are gonna be the demand drivers that withstand, uh, throughout the next five years?
00:09:42 Well, I think low cost of capital is one of those. Of course, we're seeing continuing to see compressed crap cap rates because of the low cost of capital and lower interest rates. But specifically looking at a market like the University of Arkansas in Fayetteville, Arkansas, and, and the product demands that site specifically has university property on four sides of it. It's, it's actually the hole in the donut. Uh, when it was originally built in 2015, it, it was, uh, surrounded on three sides. Now it's on the fourth side as well. So the university has continued to grow around it. And another thing that's interesting is that these universities are so massive these days, and so to get from one end of the campus to the other is offering several miles. And people don't walk that the schools have the shuttle bus systems that run around that.
00:10:35 So we, for example, at the University of Arkansas, we have two on-campus shuttle bus stops that are at the front gate to our property. So it's just like living on campus. And once again, when you look at where students wanna live, if you say you could live for exactly the same price in exactly the same accommodations on campus or off campus, 75% of those say we would rather live off campus for all sorts of reasons, right. If it were the same product, but it's not the same product because our product is, is so superior to
00:11:10 It. Well, Brent, any other, uh, any other thoughts with regard to student housing and what makes it a, a sound investment and sort of your prospects for the future? I mean, we've covered a lot, so if you, if, if that's it, uh, uh, I would completely understand. But
00:11:26 You know, I, I think looking at this from the, kind of the 30,000 foot level, uh, as, as we've been talking to people who are investing in real estate and fund managers recently, if they're, if they have an allocation of funds to put into real estate, they're looking at all of the asset classes and what they're seeing is that multi-family is performing well compared, compared to some of the other asset classes that they were invested in. Mm-hmm. <affirmative> compared to retail, compared to hospitality and some others that have been hit hard in the last eight to 10 months mm-hmm. <affirmative>. And so within the multi-family allocation, they look at student housing as the, the multi-family space that's performing better, like seniors or assisted living or even conventional multi-family, which has had some issues with collections. Mm-hmm. <affirmative>. So within real estate, multi-family is, is a competitive set that asset manager are looking at putting funds into. And then within the multi-family sphere, the student housing is the one that we're hearing, they're, they're looking at most closely. So
00:12:38 That was super insightful, the best, uh, the best lesson I've ever received in student housing in a compressed period of time. So thank you again.
00:00:23 Sure. Thank you, Darren. I appreciate it. And, um, I started actually on the construction side of the apartment business back in 1984 with the Trammel Crow companies here in Dallas, and worked my way up through the eighties and the nineties through construction, and then started moving in, in the late nineties into the development business with groups like J P I, which at that point was Jefferson Properties and others throughout the United States. And, uh, starting in 2000, I took over J P's student housing development platform and then moved to place properties in 2005 and took over their off-campus student housing development platform from 2005 to 2009 when we were the largest student housing developers in the country. Since then, we started Fountain Residential Partners in 2009 and 2010, and since then we've developed 24,000 beds across the United States, over 1.5 billion worth of student housing development. And, uh, we follow 238 markets across the United States.
00:01:28 That's interesting. So, I mean, can you give us some high level data points? I think a lot of people are, um, are wondering about student housing in today's market, right? Um, you know, our kids going back to school, you know, our, you know, our schools opening up. Like what are the big trends? What are some of the observations as you study this, these markets and the data that, that you, that drive your decisions? What are some of the big themes that, that, uh, people should be aware of with regard to student housing investments?
00:01:57 I think one of the most interesting data points to look at right now is in the last three recessionary periods, and I'm talking about in the nineties and the early two thousands, 2008 and 2009. If you look at, uh, enrollment of major universities across United States, you see these inflection points where they actually spike upwards during these recessionary periods. And that's for a lot of reasons. You have people that are in school that decide not to graduate and to stay in school because there's not jobs a avail available for them when unemployment is high. You have people that decide, like one of my daughters that says, I need to go get a graduate degree if I'm going to be employable and I want to move forward in my career path. And then you have other people that say, there's nothing out there for me now. So I, I just, I need to get more education.
00:02:50 I need to look better on indeed than I do today. It's a competitive marketplace, and so they're either staying in school or going back to school and you see enrollments increase. Now, enrollment isn't the only metric that we look at. In fact, we've seen schools where enrollment is decreasing, but there's still latent demand for new product usually because of high barriers to entry. So one of the places that we really like to go is high barrier to entry markets where it's more problematic and more difficult to find land, and especially find that land next to campus.
00:03:24 I've had two or three different downturns now in my career, but, uh, I was at that age. Your daughter's probably at now, but you know, the, the Y2K and and.com blow up. And, and so many of my friends were going back to school. You know, we lived in San Francisco at that time, and, you know, the software industry was getting blown up pretty heavily. But yeah, it is very, very common. That is a demand driver, uh, for student housing. And the, one of the things that make it recession resilient, uh, and a time like this,
00:03:55 You know, as a father of three, and I put three kids through college. Uh, I remember when I was at J P I, this was back in the late nineties and we were building in the Austin market mm-hmm. <affirmative> in the Austin marketplace. We were building one of the nicest, newest conventional projects there on Congress Street. And we saw kids driving up to it that were students at the University of Texas and Austin pulling up in their Acura NSXs to our brand new project that was the highest rents in the marketplace. When something's going on here, <laugh>. Yeah. We need, we need to understand this. And, and when you looked at conventional apartments, those would be a thousand dollars a month plus utilities, plus furniture, plus everything else, all these ads. And so the thousand dollars per per, uh, month rent became $2,000 a month on a per person basis.
00:04:49 Mm-hmm. <affirmative>. So the great thing about the student housing product is that you build that and it's all inclusive. It includes the 55 inch flat screen, the wifi, the cable tv, the internet. Yeah. So it's a phenomenal package for the consumer. And also we use parental guarantees on all of these leases. So it's not an 18 to 22 year old. They, they do sign on the lease because they're adults, but they have parental guarantees behind it. And we've seen, once again, comparing to the conventional market, there's been some issues with collections in the conventional market with those parental guarantors behind it. We have seen no drop off year over year in the student housing business for collections at all. And our occupancies have been fantastic. You know, we consider 95% and above to be full. And, uh, you know, in Fayetteville, Arkansas where we're, we have a project that we're doing a rehab on, uh, being raised on CrowdStreet right now, that market's 95% and above, rents are projected to grow 2.6% this year.
00:05:53 I mean, all of these markets, there was no decrease in enrollment there, it actually increased slightly over the last year. So all of these metrics that you're looking for, big s e c schools, tier one universities, flagship universities, like the University of Arkansas, it checks all of these boxes. And that project is a rehab that's not going to be completed until 2022. And by then, hopefully we'll have, um, you know, vaccines, coronavirus will be over, we'll be onto something new, <laugh> and, uh, yeah. And, and, and the air will be cleared. But even with that, it was really interesting because obviously we didn't know what was going to happen back in February, March, April of this year. A lot of kids went home for a short period of time, moved back in with mom and dad for a few weeks. Then after a few weeks, literally we saw them all come back and all those kids want to be back together.
00:06:48 Uh, even if, uh, we have a project in Amherst, Massachusetts that we open this year, and they're, everything is 100% online and we leased up to 98% occupancy on our student beds there. Wow. Even with 100% online, because all of those kids, they still want the college experience, even if they can't go on the college campus. There's another, uh, chapter to that story. We actually built 351 beds and we occupied 404. We had 50 bedrooms that the students decided to double up in. And so we actually occupied over 50 more beds than we built by doubling up in the bedrooms even during covid, because there, and this is another tailwind behind the university, uh, uh, b behind the university product, is that they are densifying what they're doing on campus and pushing thousands of more students back off campus. Only 22% of all full-time undergraduates can be housed on campus anyway. Mm-hmm. <affirmative>, so we're already housing 78% and more have been pushed off campus.
00:07:54 What about the future? Where do you think the future of student housing goes, you know, a couple of years out from now?
00:08:01 You know, looking at, at the actual physical property that we're building now? Um, y you, you'd be amazed, I don't know if you've seen a, a recent student housing property that's been built off campus, but I call them condo light finishes. You know, it's granite countertops, stainless steel appliances, faux wood flooring, and, and the, the wifi architecture that we put into these is, is very, very important because everything the kid, the kids do is online. You know, they have six devices each. So, so in a four bedroom unit with four people there and six devices each, we've got 24 devices per unit times 200 units that, that we have to have full capacity for.
00:08:45 That's a big internet pipe.
00:08:47 It's a huge internet pipe. So, so that's not going to go away. It's going to get even more as we move forward. But believe it or not, not the number one amenity that we have right now is study rooms. It's, it's study rooms that we put in, in the clubhouse, in the leasing office, and now we put them throughout the buildings. So there's scattered site throughout the buildings, and there are different types. We'll, we'll have some that have whiteboard in 'em, some, some that have plug and play and wifi on the TVs. We've done them, some that are art rooms. It depends on what kind of university it is.
00:09:22 Any specifics in terms of like continued population growth, those key metrics that, that you, uh, are tracking, uh, across 200 and and 30 or so markets nationwide that, that you believe are gonna be the demand drivers that withstand, uh, throughout the next five years?
00:09:42 Well, I think low cost of capital is one of those. Of course, we're seeing continuing to see compressed crap cap rates because of the low cost of capital and lower interest rates. But specifically looking at a market like the University of Arkansas in Fayetteville, Arkansas, and, and the product demands that site specifically has university property on four sides of it. It's, it's actually the hole in the donut. Uh, when it was originally built in 2015, it, it was, uh, surrounded on three sides. Now it's on the fourth side as well. So the university has continued to grow around it. And another thing that's interesting is that these universities are so massive these days, and so to get from one end of the campus to the other is offering several miles. And people don't walk that the schools have the shuttle bus systems that run around that.
00:10:35 So we, for example, at the University of Arkansas, we have two on-campus shuttle bus stops that are at the front gate to our property. So it's just like living on campus. And once again, when you look at where students wanna live, if you say you could live for exactly the same price in exactly the same accommodations on campus or off campus, 75% of those say we would rather live off campus for all sorts of reasons, right. If it were the same product, but it's not the same product because our product is, is so superior to
00:11:10 It. Well, Brent, any other, uh, any other thoughts with regard to student housing and what makes it a, a sound investment and sort of your prospects for the future? I mean, we've covered a lot, so if you, if, if that's it, uh, uh, I would completely understand. But
00:11:26 You know, I, I think looking at this from the, kind of the 30,000 foot level, uh, as, as we've been talking to people who are investing in real estate and fund managers recently, if they're, if they have an allocation of funds to put into real estate, they're looking at all of the asset classes and what they're seeing is that multi-family is performing well compared, compared to some of the other asset classes that they were invested in. Mm-hmm. <affirmative> compared to retail, compared to hospitality and some others that have been hit hard in the last eight to 10 months mm-hmm. <affirmative>. And so within the multi-family allocation, they look at student housing as the, the multi-family space that's performing better, like seniors or assisted living or even conventional multi-family, which has had some issues with collections. Mm-hmm. <affirmative>. So within real estate, multi-family is, is a competitive set that asset manager are looking at putting funds into. And then within the multi-family sphere, the student housing is the one that we're hearing, they're, they're looking at most closely. So
00:12:38 That was super insightful, the best, uh, the best lesson I've ever received in student housing in a compressed period of time. So thank you again.