Collegeslookbeyond studentstofilldorms
Demand for inexpensive housing rising among those newto theworkforce.
Smelling opportunity, investors arebuyingdormsfromstruggling schools andconverting themto housing forwhite-collarworkers.
Yeshiva University was in trouble, andPebbCapitalsaw an opportunity.
The financial woes for Yeshiva, the oldest Jewish universityintheUnitedStates, started in the early naughts, and by 2015, its endowment had shrunk by $90 million. To free up cash, the school began selling piecesof its real estate, includingtheAlabama, a student housing property inManhattan that servedstudents at Yeshiva’s Cardozo Law School.
Pebb Capital and its partner, TriArch Real Estate, bought the building for $58 million in 2016, blowing out interior walls and gut-renovating it to convert it from a dated dormitory into sleek, furnished apartments. The investorsnearlydoubledtheir money, selling the building for $104 million in February 2020; it nowhouses a mix of graduate studentsandyoung professionals.
“It’s not just studentswho want this sort of product,” said James Jago, Pebb’smanaging director. Demand for inexpensive housing options is rising among those newto the workforce.
Pebb wasn’t the only real estate firm to make such a realization. Other investors arejumpingin,seekingopportunitiestoacquiredormsfrom struggling universities and convert them into housing for white-collar workers.
Thirty percent of American universities, both public and private, are running deficits, accordingtoMoody’s Investors Service, and the pandemic has only added to financial pressures — virtual learning has put campuses into deep freeze, with online classes slashing the population of students who would have otherwise patronized campus bookstores, coffee shops and sporting events.
“It is absolutely a perfect storm,” said Michael Jerbich, president of B. Riley Real Estate Solutions. “The only thing they candois turn to real estate or other hard assets.”
Since the pandemic hit, Pebb has overhauled two more student housing properties: The Cadence, in Tucson, Arizona, and Monarch Heights, in the Washington HeightssectionofManhattan, are nowupscale apartments aimed at both students and youngprofessionals. Theshift hasbeenplaying outforyears as universities face shrinking enrollments and ballooning debts, but as the pandemic worsens, college real estate will increasingly be redeveloped or sold, experts say.
Atlantic Union College in Lancaster, Massachusetts, which closed in 2018, put its campus for sale in January; Unity College in Maine, whichlaidoff15% ofitsstaffin August, is considering doing the same. In Vermont, MarlboroCollege sold its500-acre campusinMaytoDemocracy
Builders, aneducational nonprofit organization, and shut downshortlyafter. TheBenjaminFranklinInstituteofTechnology inBoston announced in September that its South End campuswould become a mixed-use site anchoredby a nursing home.
The United States has the world’s largest student housing market, representing $11 billion in real estate investments, according to the National Apartment Association. And as the pandemic drags on and more universities feel the cash crunch, the endowmentgapbetweenlegacy campuses like Harvard andYaleandsmaller colleges is only going to grow.
“I thinkwe’re really going to see a tale of two cities but alsoataleoftwouniversities,” said Laura Dietzel, partner and real estate senior analyst with RSM, an accounting firm.
TheCadenceofferedarentbyitwas acquired by Pebb Capital in September for $33 million in a partnership with Coastal Ridge Real Estate. Pebb is planning a $12 million renovation to convert the property intostudiosand one- andtwo-bedroomapartments, bringing in amenities and design touches to attract youngprofessionals, whoare moving to Tucson in droves, many fromnearby states like California, where real estate pricesaresignificantlyhigher.
The building is a five-minute drive fromtheUniversity of Arizona, Tucson, which makes it ideal for students wanting to live off campus. Once renovations are complete, rents will no longer be offered by the bedroom, said Jago, and he expects the renter pool will shift significantly.
“We’regoingtobecomethe prime downtownmultifamilyproperty for youngprofessionals,” hesaid, “andmaybe upper-class or graduate students, the kindwhowant to getawayfromtheriffraffand the undergrads throwing up outside the bar.”
JacobBaumstein is a sophomore studying information science in a joint program at Columbia University and the Jewish Theological Seminary. Despite all of his classes being held online this year, he moved from his parents’ home in Charlotte, North Carolina, to Pebb’sMonarch Heights building over Labor Day weekend.
Despitehis virtual courses, Baumstein chose to return to NewYorkbecausehewanted asemblanceofacollegeexperience, andeventslikerooftop dinners on the outdoor terrace have helped create that.
The building, less than a blockfromColumbia, opened this summerandwas initially meanttohouseColumbiastudents exclusively. But when thepandemichit, Pebbbegan quietly shifting itsmarketing, promotingthe building’s roof deck, fitness center, coffee bar and shuffleboard court to a wider audience.