Student Housing: Student-housing developer flourishes as market stabilizes

By KERRY HALL SINGE for McClatchy Newspapers

CHARLOTTE, N.C. – Two years ago, Campus Crest Communities Inc. faced potential ruin when its only lender, Wachovia, nearly failed.

But the developer scrambled to find new money and regained its footing building off-campus student housing.

Many developers are at a standstill because demand has disappeared or they can’t get financing for new projects.

But Campus Crest rebounded from the financial crash and in October went public, raising $382 million in an initial public offering.

Now the Charlotte-based real estate developer is embarking on ambitious plans for 2011. It’s expanding into California and plans to break ground on seven projects nationwide in the fall.

Co-chairman, co-founder and CEO Ted Rollins said the firm is exploring 80 potential sites.

Off-campus student housing is a relatively new, and promising, piece of commercial real estate for investors. College enrollment was up in 2009, according to the National Multi Housing Council, prompting the trade group to say the business is “recession-resistant.”

Other promising trends: More foreigners are enrolling in U.S. universities, and students are taking longer to graduate. Budget cuts may also force states to turn to private developers for student housing.

Starting with one project in Asheville in 2005, Campus Crest operates 27 apartment communities nationwide. The developer focuses on medium-sized universities and has built heavily in the Southeast and Texas.

Rollins lives in Greenville, S.C., while co-founder and fellow Duke University graduate Michael Hartnett resides in Greensboro, N.C. The men chose Charlotte as the company’s base because they thought it would help attract workers and was near a major airport.

Their apartments, branded as The Grove, offer “resort-style” swimming pools, tanning booths, clubhouses with gyms, basketball and volleyball courts and coffee bars. The fully furnished apartments also feature private bedrooms, walk-in closets, Internet access and washers and dryers.

Campus Crest organizes social activities for residents and encourages people to volunteer and get involved in the community.

“We keep them busy. It’s an apartment that’s like a cruise ship,” Harnett said.

Smaller, local owners once dominated the market, said Jim Arbury of the National Multi Housing Council. Regional and national investors became involved during the past decade. Government-backed mortgage providers Fannie Mae and Freddie Mac are also lending to apartment developers, sweetening the niche.

With an ownership interest in more than 13,500 beds, Campus Crest is ranked the seventh-largest owner of student housing, according to Student Housing Business magazine. The largest owner, American Campus Communities, is a publicly traded real estate investment trust with more than 62,000 beds.

Campus Crest is the third REIT specializing in campus housing to go public.

With plans to add roughly 4,000 beds a year, Campus Crest employs 550 people. The company owns separate general contracting, wholesale supply, property management, asset management and development divisions.

Competitor Donna Preiss, president of Raleigh, N.C.-based The Preiss Co., said the industry is rooting for the newcomer. If a publicly traded company were to fail, it could scare investors, she said.

“The jury’s still out for whether they are good operators. They’ve had a very quick ramp-up with construction,” said Preiss, whose company is the largest off-campus housing provider for N.C. State University and Clemson University.

“They continued to build when the rest of us pulled back,” she said. “As it turned out, that was a gamble that has paid off royally for them.”

Campus Crest hasn’t turned a profit, despite its quick growth, posting significant losses during the past five fiscal years.

For the first nine months of 2010, Campus Crest reported a net loss of $7.3 million on revenues of $73.6 million.

Campus Crest’s chief financial officer, Donnie Bobbitt, said in a statement that a large portion of its expenses is related to depreciation, which “distorts the cash flow picture of the enterprise.”

“As part of our IPO, we retired roughly $300 million of debt and recapitalized the company, giving us a solid foundation from which to grow,” he said. Campus Crest will report its first earnings as a public company in a couple of weeks.

The company has hit snags as it has grown.

In 2008, its most active year with nine projects under way totaling 2 million square feet, Campus Crest found itself needing cash when its only lender, Wachovia, was sold to Wells Fargo & Co.

The men canvassed the country, meeting with 120 lenders, mostly small banks, and were able to get financing and avoid making layoffs.

More recently, residents in Fort Collins, Colo., last fall criticized a proposed project as looking like Army barracks. Residents also faulted the company for not using more sustainable building practices.

Rollins said Campus Crest plans to explore new solar energy programs, become more energy efficient and seek Leadership in Energy and Environmental Design (LEED) certification for future projects.

Preiss said the industry is poised to see better returns this year because of increasing rents.

Her company saw average rents rise 4.3 percent in January compared with the previous year. Average occupancy is also up to 98 percent from 93 percent.

Rollins said because of the money raised by the initial public offering, Campus Crest is able to do projects it couldn’t before, such as move into the California market. In one case, the company bought discounted land near San Diego that had belonged to a busted condo development.

“We’re a little tired. We birthed the baby,” Rollins said. “But we’re OK. We don’t stand still.”


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