Private Equity Cashes In as Student Housing Deals Surge

As student debt chokes legions of people, student housing has become an investor’s bonanza. So much so that private equity is into it big-time. Latest evidence: KKR reportedly just sold seven student housing properties for $725 million.

As reported by Bloomberg, the giant PE firm’s student housing arm sold the properties, which collectively have 4,500 beds, to Harrison Street, which has a large student housing portfolio, as well as senior living complexes, life science facilities and storage facilities. KKR declined to comment on the deal, and Harrison Street couldn’t be reached. It couldn’t be determined what KKR originally paid for the real estate.

KKR’s University Partners, in business for 15 years, also continues to buy student housing. In April, it bought an 801-bed property serving students at Texas A&M, according to its LinkedIn page. The subsidiary has spent $1.2 billion for 10,000 student housing beds since its inception.

Other PE firms are at work in this space. Last year, for instance, Blackstone Real Estate Income Trust paid $784 million for a majority stake in a group of eight student housing properties with 5,416 beds.

U.S. student housing deal volume increased 121% in 2022’s first quarter from a year earlier, to $2.4 billion, according to MSCI’s real assets unit. This year, student housing average cap rates (real estate lingo for return on investment) are at a not-bad 5.1%. That’s 0.40 percentage point above conventional multifamily facilities, says a study from Berkadia, a large commercial real estate company with a research unit.

Sales of student housing set a record in 2021, at $9.6 billion, with the average price per bed also at a high, $84,791, says the Berkadia study. And 109 student housing projects are under construction nationwide, with the bulk of them in the Southeast.

All this real estate activity comes amid a decline in student enrollment over at least the last four years. But analysts expect the slump to turn around, and recent developments may show they’re right. The number of students arriving for spring semester 2022 increased 4.2% compared with the year-before period, per the National Student Clearinghouse Research Center.