Like a lot of us on the operations side of multifamily investment, I started my career by accident when I applied to be a resident assistant at a privately held residence hall serving the University of Santa Barbara 29 years ago. At the time, I was a freshman simply trying to find a way to ease the financial burden of college on my parents.
Today, student housing is still at the forefront of my mind, not only as a 29-year veteran of the industry, but also as a guarantor on a student lease at the University of North Texas, where my eldest is a sophomore physics major. Except he is not currently at UNT, because the university, like most others, is shut down due to the COVID-19 outbreak. He is currently taking his classes from the bedroom next door to my home office 30 miles from campus and the student apartment we are currently committed to.
I write this from the perspective of someone who literally printed out his lease agreement to read it over for a “pandemic clause” or even a “remote learning clause” somewhere in the fine print. This is the reality the student housing market is facing right now – where even someone who has been in the industry for 30 years is at least checking his options. And no, there is no clause to provide us relief – and I am OK with that.
In some ways, the student market is ahead of conventional apartment market in being prepared for this. For years, they have led the way in facilitating remote transactions, with many of the emerging technologies having been born in the space. Online leasing, resident portals and “touchless” transactions are a normal way of life when dealing with Gen Z and a consistently remote leasing demographic. They can still do business as the COVID-19 social distancing practices require business to be conducted in ways that prevent face-to-face interaction. From a technological perspective, they are good.
Even with anecdotally reported physical occupancies being reported at around 60%, I still think they are good for 2020. I do hold out the positive outlook that the majority of lease holders will continue to keep their contractual obligations. My family has every intention of doing so.
Where this segment of our industry is and needs to be hyper-focused right now is pre-leasing for the 2020-21 school year – which just came to a screeching halt in many places across the country. With so much uncertainty around the future, I can tell you that all of my friends who have college-age sons and daughters are asking the same question: When do we send our students back?
Please note that the question is when, not if we send our students back to their respective schools.
Student housing demand is being displaced, not lost. Do I believe that there will be a portion of the student population that never returns? Yes, but I believe it will be relatively small and will be dominated by the international population. Renters are delaying the leasing decision process until they have more clarity around the academic experience. We talked as a family last night and decided to use the announcements around summer classes and new student orientations as our barometer for when to make a decision around living arrangements next year. Until those activities start back up, we are assuming remote classes and we will be one big happy quarantined family unit.
So as I project forward and put my operator hat back on, I ask myself: What would I be focused on to be ready for the displacement? Four things:
- Be aware of the optics. With a hyper-shortened leasing season, an economy in recession and every consumer thinking about the what ifs, the optics around rent are going to be more important than ever. The concept of keeping market rents high and offering steep concessions to offset this “blip” might appear preferable from an asset management perspective but should be discussed at length. Operators cannot afford to slip up in the leasing process this year and are going to be more aware of where leased rents are versus the latest special. Utilizing net effective rents from a leasing perspective may be the way to go with smaller marketing-based incentives to be used as specials.
- Have a plan. On a university by university basis, I would be identifying my major markers for determining the openness of the campus for 2021 (like summer classes referenced above) and would be tracking all the demand I would normally have experienced up to that point in the leasing cycle. Once that university has announced they are open for business, be ready to react. The demand that has not materialized as it normally would have in the leasing cycle will react very quickly. I can tell you that the Bowens would very much like to get something off the checklist and back to normal, and the housing arrangements for our college student is literally at the top of that list.
- Be ready to react quickly. With the anticipated increase in leasing velocity, pricing and leasing velocity will need to be reviewed more often, perhaps even as often as daily if the leasing season gets compressed enough. Lead funnels will need to be addressed with immediacy, and we should be working now to make sure we have our finger on the trigger to activate them as needed.
- Get ahead of it. For months, I have received an almost daily reminder that our lease renewal agreement is ready to be executed electronically. It has been assumed by our provider since almost Day 1 that we would want to continue our residency. Those emails are no longer coming in. What also are not being received is any type of marketing material or communication from any of the competitive properties we visited last year before deciding on the facility we did. Now is not the time for less communication. It is the time for more, as long as it goes past your COVID-19 response plan. Marketing departments should be actively combing through the last three years guest card information and creating drip campaigns that acknowledge the uncertainty of the situation, commenting on how they are working with current resident base and a plan to take care of their future resident base.