By Ian Ritter | Shared post from the Hightower Blog

Student housing facilities have changed a lot over the last several years. Tech-enabled, communal living spaces have replaced the stacked double rooms that once defined the college dorm.

But, the newest trend is that some student-housing developments are now adding retail and other property sectors to their project, effectively creating a mixed-use arena. This marriage makes sense because student housing has become more of a mainstream commercial real estate product type.

The reason for this change is a spike in undergraduate enrollment, which is attracting both developers and various retail  / restaurant tenants. According to the National Center for Education Statistics, between 2000 and 2010, undergraduate enrollment rates increased by 44 percent. And even more growth is projected. The organization sees a 14 percent increase from now until 2025 for full-time students, while part-time students are reportedly rising 15 percent.

The commercial real estate industry is taking notice.

How to go mixed-use

One recently announced example is in downtown Orlando, where the University of Central Florida’s new student housing complex is going up. The $90-million development, which will have between 14 and 15 stories with 600 to 700 units, will also include 10,000 square feet of retail. Meanwhile, also in downtown Orlando, Valencia College is planning a student housing facility, which will also have 50,000 square feet set aside for a restaurant and staging area for the school’s hospitality program.

This fall, a mixed-use student-housing project is set to open at Johns Hopkins University, in Baltimore. Below will be 30,000 square feet of retail and restaurants anchored by a CVS. Additional tenants include Honeygrow, a regional Northeast fast-casual chain that serves food with local ingredients, and a local ramen shop.

In downtown Greenvillle, N.C., the home of East Carolina University, mixed-use student housing is one of the centerpieces of Greenville 2020, a public-private partnership intended to shape the development future of that city. Part of the $1 billion in total investment, which includes public-transportation improvements, retail, restaurants and breweries includesCampus-Edge. That project will reportedly have 20,000 square feet of retail space underneath five stories of student housing.

These types of developments aren’t limited to housing strictly for students, but are going up where students are major tenants along with other renters. Boston, for example, has several universities scattered throughout its metro area. A development in the Downtown Crossing area looks to target both. A 72-story tower being proposed in Downtown Crossing, will be a mixture of residential and office, and developers Millennium Partners are banking on students taking up much of the apartment space in the building.

Still, not a perfect marriage

A recent Urban Land Institute (ULI) panel on student housing addressed the trend. J. Wesley Rogers, president and CEOLandmark Properties, said that putting retail under the housing units can provide a stronger yield for some assets. In Gainesville, Fla., for example, retail rents in one of the firm’s properties are commanding a strong $50 per square foot.

But Rogers warned that putting the two product types together doesn’t always work. For one thing, some municipalities won’t allow the combination due to zoning issues. Plus, Rogers pointed out, a good student-housing location doesn’t always mean a good retail location.

So, making every student-housing development a mixed-use scenario doesn’t necessarily make sense. But if it is in a dense area near a campus, or in an urban environment, where some universities are located, there isn’t much downside. Student housing in these locations not only has a built-in customer based above the asset, but college towns in many locales are similar to the 24-hour environments in big cities that retailers and restaurants increasingly crave.

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Ian Ritter

By Tierney Plumb | Shared Post from the Hightower Blog

For the past few years, the media has churned out a steady stream of stories describing how city-loving millennials are driving a re-urbanization of the U.S.

But not so fast. As it turns out, the white picket fence life is still desirable for the young age group, according to a new report from CBRE.

Census data shows domestic net migration out of cities and into suburbia. We chatted with the author of the report, CBRE director of research and analysis Darin Mellott.

By the numbers

The most recent annual data from 2014 shows that 2.8 million people moved from the suburbs to cities that year, but 4.6 million did the opposite. That means the death of suburbs isn’t nigh.

“This news is quite shocking to some people because of how much life that prevailing narrative that has taken on its own,” he said.

Millennials, or those mostly born between 1980 and 1995, make up the largest age group in the country and the biggest segment of the U.S. workforce. But census data does disagree with the media when it comes to where they actually live and where they have been moving to.

About 30% of millennials live within urban areas. The remaining balance doesn’t appear to be rushing to city centers; in 2014, 529,000 people between 25 and 29 moved from cities to suburbs, while only 426,000 did the reverse.

For the younger end of the spectrum (ages 20 to 24), the flow’s direction was even more pronounced, with 554,000 becoming city dwellers and 721,000 trading cities for ‘burbs (keep in mind some of that represented relocation into parents’ basements).

Among the oldest millennials and the tail end of Gen X, negative net migration was even more: 1.2 million people aged 30 to 44 moved from cities to suburbs, while 540,000 did the contrary.

So what do they want?

Space and an urban feel rank high on the list. A recent survey showed that 81% of young people (classified as millennials and those born in the late 1970s) want three bedrooms or more in their place.

That preference means suburbs would be the more likely pick when it comes down to family formation and affordability, he said. “It’s hard to afford a three-bedroom in Manhattan.”

In another study, nearly two-thirds of millennial-aged respondents self-identified as suburbanites or rural people.

Still, country mouse types aren’t everywhere. Millennials love urban perks, like access to public transit, shops, restaurants, and offices. Just because millennials appreciate city living doesn’t translate into demand for downtown real estate.

Suburbs can grow on younger demographics once injected with urban qualities.

In San Jose, for example, mini mixed-use developments like Santana Row have plunked down a myriad of restaurants, bars, and housing that replicate the environment found an hour north in San Francisco. Similar redevelopments on the outskirts, dubbed “hipsturbia” and “urban burbs,” are popping up more and more.

Why the increase? As millennials leave cities, they still crave certain amenities and more developers are reacting to that request, he said.

Western cities like Phoenix and LA are seeing pockets of strong suburban activity, he said, and that same phenomenon is occurring in suburbs of New York and New Jersey.  “Those pockets share common characteristics—that is suburban areas with urban qualities,” said Mellott.

Exceptions to the rule

Of course, the report doesn’t aim to make a blanket statement across the board about millennials and suburbia; keep in mind no two property markets are created equal, and each market has its own dynamics that play out on various levels and in unique ways,

And there are definitely downtown markets across the country that have outperformed—and will continue to outperform, in some cases—suburban markets.

For example, McDonald’s Corp. recently announced plans to move its headquarters from the suburbs to downtown Chicago.

“While we are continuing to suburbanize, that doesn’t mean dynamics are negative in cities,” Mellott said.

Some big firms are realizing that an urban setting is a big selling point when it comes to attracting and retaining new talent. And in San Francisco, Silicon Valley-based Facebook is considering adding a ton of square footage in San Francisco. And LinkedIn recently tacked on an entire office building in downtown San Francisco to appeal to city lovers.

While there’s some truth to the idea of the resurgent urban core, it is also fair to say the extinction of the suburbs and millennials’ love of cities have been “greatly exaggerated,” he concluded. His study aims to dispel erroneous thinking that millennials are anti-suburb.

“We are trying to form a more informed and intelligent conversation around these topics. Suburbs aren’t dying,” he said.

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Tierney Plumb

By Billy Fink | Shared post from the Hightower Blog

Over the past 30 years, the commercial real estate industry has transformed from a “mom-and-pop” industry to an institutional asset class where owners manage massive, complex, and global portfolios.

Although this development is good news for many CRE professionals, it is not without its consequences. As more money flows into the asset class, competition has worsened across the entire industry.

Competition for Deals

The most significant rise in competition has been on deals. Over the past few years, billions of dollars — from institutional and foreign sources — have flowed into real estate and driven up prices for desired assets across primary, secondary, and tertiary markets. This flow of capital has far outpaced new construction and new development, leaving commercial owners in a classic supply and demand challenge: there are more dollars in the industry chasing each deal.

To handle this rise in competition for deals, many commercial owners have sought investors with deeper pockets, developed a clear specialization in their investment strategy, or sought secondary markets. 

Competition for Capital

Many GPs are fighting a two-front war, feeling pressure on both the deal side and the fundraising side. According to a recent survey of owners across the industry, 67% of commercial owners feel that competition for investment dollars is increasing. Institutional investors are not cavalier with their money. They want to pick the firms with the absolute best yields. Limited partners are placing greater emphasis on better tools, real-time reporting and visibility into performance.

Many proactive owners have decided to adopt new technology to help them better report and analyze their portfolio. 

Competition for Talent

The industry is also beginning to realize that firms are in a war for talent. The next generation of CRE leaders expect a different work environment with mobility, modern tools, and data at their fingertips. The companies that lag behind are finding it increasingly difficult to recruit top CRE employees and are suffering from a growing talent gap. This next generation of CRE professionals is demanding change in its employers, encouraging new ways of working, and new technologies to drive the business forward.

Competition for (the best) Tenants

The last major area of competition is for tenants. Although many believe it is an owner’s market — after all, office leasing activity is strong — that doesn’t mean competition for tenants is not still increasing as well. As a matter of fact, 80% of owners indicated in our survey that competition for tenants is increasing.

Over the past couple of years, low interest rates and a recovering economy encouraged billions of dollars of transactions, and many owners are now trying to find the right tenants to satisfy their specific ROI strategies. As a result, they’re waiting to satisfy certain returns, even if it means a short-term loss. Competition is heating up for tenants.

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Billy Fink