Austin-based American Campus Communities Inc. recently revealed that it has entered into an agreement to recapitalize and ultimately acquire seven select student housing properties totaling 3,776 beds for an aggregate $590.6 million, including an exclusive option to acquire a 248-bed property in Seattle, WA, from affiliates of Core Spaces and DRW Real Estate Investments.
The portfolio investment focuses on strategic growth in seven key Power-5 conference and state flagship university markets, and offers the potential for multi-asset market efficiencies in five existing ACC markets, according to a prepared release. The transaction includes the acquisition of two existing communities, two communities opening in Fall 2017, and three projects under-construction scheduled for completion in Fall 2018, with closing and funding events scheduled to occur in a staged manner over approximately two years, allowing for optimal integration and funding.
American Campus Communities believes these seven assets represent some of the best purpose-built student housing properties in their respective markets, combining market leading unit and amenity packages with excellent locations, with the portfolio averaging only 0.2 miles to campus. Additionally, the seven strategic growth markets offer strong student housing fundamentals with average enrollment in excess of 35,000 students and existing purpose-built student housing supply serving only 13 percent of total enrollment, as compared to an average of 22% for the company’s current portfolio.
As previously noted, in aggregate, the $590.6 million transaction is expected to include closing and funding events over approximately two years. The company intends to fund a substantial portion of the total transaction through the monetization of select existing core assets via disposition or joint venture, thereby taking advantage of the current cap rate environment for core pedestrian student housing in tier one university markets, where private market transactions in the 4.0 to 4.75 percent cap rate range are frequently occurring, the release says. After investment of $7.9 million of upfront capital improvements, the portfolio targets a stabilized cap rate of 5.4 percent nominal and 5.2 percent economic for the 2019-2020 academic year, with multiple property market efficiencies offering the potential for additional yield above the going-in cap rates for five of the seven assets.
“Core Spaces and DRW have developed some of the finest student housing properties in the country,” said Bill Bayless, American Campus Communities CEO. “The properties we have strategically selected in this portfolio are located in Power-5 conference and state flagship university markets that meet the highest levels of our investment criteria of differentiated products in close proximity to campus in submarkets with high barriers to entry. With the implementation of our operating platform across the portfolio, we should achieve meaningful accretion in asset value as well as additional operational efficiencies within the five markets where we have existing properties.”