American Campus Communities Takes $208M in Student Housing

January 20, 2012
By Barbra Murray, Contributing Editor

The Varsity near the University of Maryland

American Campus Communities Inc. has just expanded its portfolio by nearly 2,000 beds with the acquisition of 26 West Apartments in Austin and the purchase of a controlling stake in The Varsity in College Park, Md. The total asset value of the premier properties is $208 million.

In Austin, American Campus shelled out $86.2 million to snap up 26 West, a 1,026-bed apartment community sited on five acres just one block from the University of Texas. The building also offers a 1,000-space parking facility and at the time of the closing of the transaction, recorded a residential occupancy level of 98 percent. While the property is only five years old, American Campus plans to take the asset to a higher level with the investment of $2.8 million in capital improvements and amenity enhancements.

American Campus also added The Varsity, a top-of-the-line student housing community across from the University of Maryland, to its holdings with the acquisition of a 79.5 percent interest in the entity that owns the property. The purchase price of the controlling interest was based on a total asset valuation of $121.5 million. The Varsity made its debut less than a year ago in August 2011, featuring 901 beds and 23,000 square feet of student-oriented retail offerings.

The student housing market, unlike most sectors of commercial real estate, remained strong during the debilitating economic downturn, and demand is on track to increase further. “Student housing demand tends not to be impacted by the broader macroeconomic conditions, and the expected growth enrollment is a positive for the industry,” William Talbot, executive vice president of investments, told Commercial Property Executive. “Each individual university market has its own unique supply and demand characteristics. Most enrollments tend to be stable and have slow-moving trend lines.”

Of course, as is the case with any commercial real estate sector, failure is an option in student housing. “Oversupply is the greatest risk to each individual market,” he added.

American Campus has done its homework and identified the appropriate markets for expansion of its portfolio. The REIT will deliver 11 properties, representing approximately $385 million in total development, in time for occupancy for the fall semester this year. The group of assets ranges in size and locations and includes the 978-bed University Pointe at College Station near the University of Portland in Oregon, at a project cost of $87.8 million and Casa de Oro, a $14.6 million, 365-bed student housing community near Arizona State University in Glendale.

“We look at opportunities nationally,” Talbot noted. “Today, we are developing properties from Oregon to New York.” American Campus is keeping mum on the specifics of its target markets for future pursuits; however, the REIT certainly has the money for additional acquisitions and construction. The company relies on a handful of sources to fund its endeavors, including cash on hand, credit facility borrowings and proceeds raised under the ATM program, under which the company sold approximately 1.9 million shares of common stock for net proceeds of roughly $74.1 million in the fourth quarter of 2011.