When COVID-19 lockdowns sent college students home in 2020, many feared the pandemic would establish online learning as the new norm and significantly weaken the student housing industry.
In fact, while many students opted for online courses in 2020, they also decided to live in on- and off-campus housing. Since many had already signed a lease for the full academic year, the student housing market remained solid overall.
Looking ahead, industry experts project an auspicious 8% undergraduate enrollment rate increase over the next decade. You’ll see early indications of these predictions playing out in the uptick in first-time, first-year student enrollment, which increased by 4.2% — a gain of 13,700 students — in the spring of 2022, compared to the loss of about 11,800 enrollees a year earlier. Meanwhile, public, four-year institutions reported a 10.8% increase in freshmen.
Though all investments experience market fluctuations, the student housing sector has historically shown less volatility than most. The minimal disturbance the market experienced during the pandemic and recent hearty increase in investor interest substantiates the steady nature of this sector.
With a projected number of almost 20 million students enrolling in college by 2029, student housing remains an attractive investment opportunity now and into the future.
Indirect vs. direct investment
During the pandemic, investment in private, fixed student housing plummeted from a seasonally adjusted annual rate of $4.51 billion in the fourth-quarter of 2019 to $2.86 billion in the second-quarter of 2021.
The pandemic drove many direct commercial real estate (CRE) investors to reconsider the stresses of purchasing and managing a property on their own. Plus, direct investment in student housing can be a high-risk venture for someone with little-to-no real estate investment and management experience.
Since then, indirect investment opportunities including Real Estate Investment Trusts (REITs) and Delaware Statutory Trusts (DSTs) have become more enticing.
The DST advantage
DSTs allow each investor to secure fractional ownership in a variety of CRE properties, including student housing. As an indirect investment avenue, a DST gives an investor the chance to easily invest in multiple properties and expand and stabilize their portfolio.
Similar to DSTs, REITs allow individuals to invest in multiple property types through a diversified portfolio. While there are some privately traded REITs, most investors gravitate toward the publicly traded options, which can outperform the stock market in the long term but be equally unpredictable in performance.
Meanwhile you’ll enjoy the same tax shelters as with direct investment — ones you can’t access with REITs. DSTs receive the same income tax shelters as owning direct real estate. As a general rule, this provides higher income-tax sheltering potential compared to investments in REITs. Additionally, private real estate, which includes DSTs, does not trade on active exchanges, and so valuations move far less frequently compared to publicly traded REITs.
DSTs also offer capital gain deferment options. For example, if …….
