Student Housing: When To Build Or Buy With Justin Smith

ICWI Justin Smith | Student Housing

There are more ways to diversify when investing in the multifamily class. If you’re looking for the right flavor to dip your investments into or are looking to add more sprinkles, this is the episode for you. Joining Matt Fore is the Founder of Relequity Enterprises, Justin Smith, to talk about an asset class that not a lot of investors have caught on. Justin brings a sugar cone-full of insights into student housing and shares how you can generate more passive income. He also talks about the factors to consider when deciding whether to build or buy into the space. Tune in and get the scoop from the one who led the build of 1,356 units of housing or 3,200 beds over the last 6 years, exceeding $422M in project value.

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Student Housing: When To Build Or Buy With Justin Smith

Our guest is Justin Smith. Justin is the Founder of Relequity Enterprise, a private equity real estate that requires multifamily real estate in the Southeast and the Midwest. He’s also a General Partner in 360 housing units in Des Moines, Iowa. I’m super excited to have Justin on the show though because he also advises private clients on developments in Texas, California and Ohio. Justin, welcome to the show.

Matt, how are you doing?

I am fantastic. How are you?

I’m having a great day. I’m enjoying the week. It’s a little warm where I am, and it’s always a good day to hang out.

We like to start with the difficult questions here. What’s your favorite ice cream?

My favorite ice cream is Rocky Road. Growing up, my favorite was chocolate, chocolate everything, but then I discovered Rocky Road. It’s like, “You can get a little splash of candy. You can have a little marshmallow.” Some vendors might put a little nut in it or something like that. That’s what I’m all about. I like that. I like that little splash of the basics, the foundation plus a little extra thrown in there for good measure.

I love it. Are you a cone or a bowl guy?

I like the sugar cone. The bowl is like when you get older, it’s like you’re eating like your parents. You get a bowl but when you are young, like you and I, you go for the cone.

There’s nothing better than walking in an ice cream shopping and smelling a good, fresh sugar cone too.

That’s the best. I did a project in Boise, Idaho. They had a little place that did their own cones. It was right downtown. I’ll tell you this though, the cone is so good, I used to just get basic chocolate. I enjoy that.

Tell our readers what’s the scoop? What do you do now?

Buy something where there may not be a lot of competition. Then you know your rents can be solidly and conservatively grown. Click To Tweet

What I do is I sit around wondering whether it is advantageous and better to build real estate or to buy it because we could do both. There are different markets, different places, but the question that comes to my mind is build versus buy, and why? That’s where I like to focus my energy, and specifically diving down into that building and buying is student housing.

Student housing is one of those specialty asset classes that most folks either don’t know about or haven’t gotten to it. I like to go there and build properties. I’ve probably built over 1,500 units of student housing across four different states. I’ve seen it in whether a small, 190 units or large, 599 units. That’s where I like to play. That’s where I like to get active, and go ground up a new construction. If I find an opportunity in a particular market that might be 50 units, which might equate to let’s say 70 beds, which is the correlation to the student housing world, I might take a look at that as well.

I want to get into student housing but before we do, you mentioned build versus buy. What are some of the determining factors on whether you would build versus buy in a particular market?

In a particular market, there’s an underlying risk versus reward factor. Here’s one thing. If the market is remote or rural, and the resources and those type of folks, contracts and what have you, can’t get to that market, then construction could be difficult. That’s also a good thing from a buying perspective because the pricing there is pretty solid. It’s entrenched. You don’t see a whole lot of cranes. You don’t see a whole lot of dilution of the housing stock. You pretty much know, “If I buy something, there may not be a lot of competition. My rents can be solidly and conservatively grown.” That’s the type of market.

A rural market that may be far away from the city centers and that type of thing, I’d probably go with an acquisition strategy. If it’s another type of market that may be closer to a city, I might want to go with a build strategy because the resources might be there, the capital might be there. The investment community might also be more interested in investing in that particular project, and the cost of that capital, which is very important. It could also be more economically feasible for the project.

Are there any metrics that you look at maybe permits or vacancies or anything like that that you look at in the market?

One factor to look at is how many students to bed ratio because if you go into a particular market and a particular city, let’s say there are 10,000 students at that particular university, maybe it’s 10,000 to 12,000 students. Then you look at how much actual housing stock is in that particular area. It might only be enough beds or housing for let’s say 4,000 to 5,000 students. You’re under 50% in terms of ratio, meaning beds to student population in the area.

That suggests that rents are going to be strong. That suggests that if you do buy a property there, you will likely be able to lease it up. That also suggests that you could probably forecast mild to strong rent growth. Those are some factors. The other thing is look at the news. You can look at the local news for that particular area and see, “Is there a housing crisis? Are students 6 to 7 to a house? Are there situations where families are saying, “We’ve got to move further out because all these students are all over the place?” Those are different factors that you can take a look at in the market and understand whether or not there is a housing shortage for students.

You’ve used the term beds versus bedrooms. Are they interchangeable or what separates a bed versus a bedroom in a student housing?

Here’s the difference. Let’s say I had an apartment with three units. In a regular market, in your multifamily market, you could rent that three-bedroom apartment out. Let’s say you rented it out for $1,200. In a student housing environment, you can rent out each one of the bedrooms. Let’s say you rented out per bed those three bedrooms at $500 apiece to three students. At that point, you’re getting $1,500 rent versus the $1,200 if you rent it as one unit. Does that make sense?

Yes. I’ve heard of people doing this in very dense low housing supply markets such as Portland, Seattle, San Francisco, and things like that. I think it’s called co-oping in the multifamily space if I’m not mistaken. Is that one of the reasons why you’re excited about student housing is because the ability to charge per bedroom has higher returns, or what excites you about student housing?

ICWI Justin Smith | Student Housing

Student Housing: In the multifamily world, your tenant is essentially signing a done deal. In student housing, you have a silent third partner supporting the revenue for that particular space.

What excites me about student housing is a couple of things. I think it’s a demographic group that’s fun. It’s a demographic group that gets excited about different environments. I can connect with a younger group better. Also, by the bed is something that works to your advantage or to your favor. Also keep in mind that it may only be a ten-month lease because students all vacate the premises in the summer. You have those type of market conditions you have to deal with, but I do like that better.

I think that you can also, depending on the size of your building, add different services. You can add different student resources. There are certain things in the community that you can leverage that might benefit your building, whether it’s parks, bus lines, ad hoc services like the scooters and the renter bikes, all those different other services, to give the students a suite of services, if you will, and wrap it around your housing. All of those things can be pluses and benefits for your students.

Is that what you’re noticing separates properties on campus these days, those amenities? I’ve heard of things like that where in multifamily, we would offer better WiFi, a place to work, co-working, free coffee, things like that to attract different type of tenant base. Is that what you’re seeing attracts students these days is the amenities of a project?

For sure. You should look at some of the stuff that they’re building in places like Boise, Minnesota, Washington, and that’s Washington State. The amenities are great like swimming pools, fitness centers, study lounges, conference rooms, and game rooms. It goes on and on. All of these different ancillary things that you can build like rooftop decks, lower level decks, parking. There are a lot of different things that you can build in if you design the space early with that student resident in mind.

My nephew went to North Dakota State. He’s a freshman there. One of the reasons why he went there is because he went on campus and they have a student lazy river. He spent all that money, and the one thing he loves about the university is the fact that it has a lazy river.

You’re like, “I’m going there because I like a lazy river.” It’s like, “What about the Biology department?” “It’s okay. I’m okay.”

Things are a little different than when I was in school.

The other thing is student housing is also moving to a suite base. Some of your readers might recall the days when you had to get your robe and your soap tray and all that, and travel down the hallway to the twelve-person bathroom. Nowadays, you’ve got these suites where you’ve got your own bathroom. You have what’s known in the student housing world as Bed-Bath parity, meaning every bed has its own bathroom.

That’s a distinguishing feature you start to see in some of the newer construction is a three-bedroom apartment or unit might also have three bathrooms, so that each student can have their own bathroom. That’s a major selling feature. You share the kitchen space, but if you want to go to your room and eat your oatmeal and broccoli by yourself, you can go to your room and do that and not come out and not be bothered by your neighbors or by your roommates and so on.

I lived in a place in college that had three toilets. Only one of them worked at a given time. I’m very familiar with the trotting down the hallway to the bathroom in your robe and soap dish.

Those are the old days of the early 2000s.

By the bed is something that definitely works to your advantage. Click To Tweet

I want to ask you, anytime we’re talking about student housing, the first thing that goes to my mind is all the debauchery that I got into when I was a student at the University of Tennessee. How do you protect yourself from potential damages that a student is going to do to a property or the wear and tear maintenance that happens on a given student housing?

By industrial style furniture. Your asset and property management team has to be active, and letting people know, “This is your space. We all live here. Let’s appreciate the space. It is a community,” so with education. That’s one key part of it. Another key part of it is by enforcement and say, “If we find that you’re damaging your chairs or this and that, there’s a cost associated with that.” Instituting the code enforcement or some type of payment enforcement. Students get the message.

Let’s say everyone wants to lose their key all the time, “Lose your key once, we’ll help you out. Lose your key twice, there may be a $5 charge for you to get your key. Lose your bedroom furniture, there’s going to be a $20 charge for you to get your bed back because you wanted to sleep out on the roof or whatever with your buddies and surf down the wall and do goofy things.” You have to teach them through education, through a little enforcement. If those two things don’t work, then you’ve got to go with the good old tried and true, “We’re going to back charge you for X, Y and Z.”

Do you make parents co-sign on the lease?

Yes, that’s another thing that’s a positive. Typically, you have that third party that’s signed on the lease as well. Students can’t get too unruly because mom and dad, ultimately in the end, might be finding the bill. That’s a positive thing because in the multifamily world, it’s like, “Your renter or your tenant is essentially signing at least done deal.” Now you have this silent third partner that is supporting the revenue for that particular space.

Also, at the same time, there’s a double-edged sword to that because that parent, mom and dad might also be a little bit more proactive towards speaking out about issues or coming to visit or physical challenges with the space and all these different things. Your property manager’s phone might be ringing saying, “My child’s refrigerator is not working. Get down and go fix it.” You might also have that extra tenant that will call and voice complaints.

They might go full Karen on them.

They’re like, “My daughter’s room is too cold or they don’t like their roommate.” The parents call and so you have to deal with those things too.

Over the past 50 years, we’ve seen an explosion of the college population and enrollment in colleges. I have a belief that probably is going to change over the next twenty years. I don’t think you’re going to see all these little smaller colleges. I don’t think students will need to go to college to show that they have proof of work. I think as they come through high school, they’re going to do things like start a company, develop software, and show that they have these skills to their future employer versus maybe going to college. I don’t know if you could talk us through maybe that concern or how you view that as an objection to potentially investing in student housing.

I think that what it speaks to is the smaller universities that might not have been able to turn on the dime and address the pandemic and those needs to get out there electronically, and get out there remotely and address their student body. I feel like those universities might still have a challenge because they’re small. If the student body does pull away, then naturally that might affect the housing in that particular area.

It’s also interesting that in some respects, it also follows a Red State, Blue State dynamic. Not trying to get political or anything, but that’s the way of the US in terms of policy around the whole pandemic, and it wasn’t consistent across the board. A smaller college in one of your Midwestern states might have fared okay versus maybe one another school on the North Atlantic starboard. They might have had some challenges with people moving in or one on the West Coast might have had some challenges because of the states and their different policies.

ICWI Justin Smith | Student Housing

Student Housing: Look at the states and how those universities have fared in general, and then look at the population of that particular university.

To answer your question, it’s state specific. Look at the states and how those universities have fared in general, and look at the population of that particular university and what policies they might have towards that. Truthfully, some universities increased enrollment across the Midwest. Enrollment is increasing and pulling away from some of the other states. It is a case study of specific and general locations to observe.

That was going to be my next question. Do you focus on specific universities for your developments? For instance, University of Texas is not going out of business, $6 billion enrollment, whatever it is because they own all that oil land. Do you focus your developments on those bigger schools or do you look for pockets of opportunity? Talk us through how you evaluate a market.

It is usually about pockets of opportunity. Where do you have a supportive economy, a growing university, a university that has some desire through their campus master plan or through their educational master plan to grow their enrollment? There are socioeconomic factors which might support that particular university. Like I mentioned, the lack of student housing versus their own student body.

A group of universities that we’re looking at is the HBCU, which is the Historically Black College and University here in America. They’re starving for housing. We’re looking at a number of those universities and working with them to see what we can do about bringing student housing to their doorstep because they want to grow. They want to educate their students.

They also want their students to live on campus or off campus or near campus because it fits to their mission. It fits into their model of being not only an educational institution, but a culturally sound and supporting institution as well. Those are some of the factors that if you find that, we look at. When you layer all those different things and they don’t have housing, then that’s a great location to invest. That’s a great location for us to go build and partner with the university and so on.

What do you think Deion is going to do to the HBCUs? I feel like he’s going to bring so much untapped money and fundraising to all HBCUs. By far, I’m pro-Deion.

That has already happened. I think the notoriety, the historical significance, the football squads, the bands, the educational institutions are far greater than a lot of other institutions. Students, their success ratios are great. Many of their students go on to higher education, whether it’s Master’s or PhDs. They’re some of the best institutions that the US has to offer. I would ride them and put them up against many other institutions.

We’ve got a great one in my backyard here in Nashville, Tennessee State. When you’re reading through some of the history and some of the talent that’s passed through there, it’s incredible.

Many of them are in areas where they’ve had their economic challenges with institutional capital pouring into the university. Persons like Deion and others can raise that awareness of, “Here’s a student base. Here’s a body of students that needs as much institutional awareness and educational awareness as it is your Berkeleys, your Washingtons, your Harvards, your Yales, your Cornells, your University of Texas, and so on.

Before we transition here, are there any publications or websites that you follow that give you some of these metrics that we talked about, enrollment increases, student to bed ratios, and all that stuff?

A lot of is metric driven, but I do follow a couple of larger organization for the general development arena. In the US it’s called ULI. Urban Land Institute is one organization. There are a couple of others. I think it’s called Student Housing News, Multi-housing News in those type of publications. Give you some indication of what’s happening in those type of spaces. Also, looking at very targeted universities. Looking at different set of data points. I can say, “Here are the top 25 universities that are right for student housing, and have a need there. Let’s see if we can find some opportunities there.”

Today is a blessing. Tomorrow's not promised. So today is your chance to wake up and do that next thing. Click To Tweet

I want to switch us now into our last round. We’re calling this the Five Toppings. Our first one is, what is your favorite book or what is a book you’ve read that’s given you a paradigm shift?

One of the books that I read previously was by Reginald Lewis, and I think the title was Why Should White Guys Have All the Fun? It was an African-American man who came from Baltimore, and went to school in Virginia. He also went on to Harvard. He was a very successful Black man through the ‘80s and ‘90s and so on to his passing in ‘93. His story is of perseverance. His story is of one of the first Black successful, wealthiest man in this country in that story of persistence. That story of, “Get out there and achieve. Get out there and follow your passions, follow your dream.” It resonated with me many years ago. That’s a book that I enjoy.

Our second one is, I believe that the person you become ten years from now is directly correlated to the habits that you have and the things that you do every day. What are some of the habits that you have every day?

Some of the habits I have now is every day, I go after my SEO. What probably comes to mind for you is Search Engine Optimization, but I take it a little bit different. I choose to look for my Sun, Energy and Oxygen. Look for that natural inspiration that gets me up and gets me going. I was born in May. I’m a sun child. I’m invigorated by that, and that gives me energy. Knowing that I have that oxygen right behind me, that in itself is a blessing. If that’s the core of what I’m looking for then how do I do that? Every day, I get up and try to be thankful. Immediately be thankful. Today is a blessing. Tomorrow’s not promised. Today is your chance to wake up and do that next thing.

Also get some exercise in there, and try to constantly have your body in motion. Object in motion stays in motion. Object at rest tends to stay at rest. I think that’s from one of my Physics classes but nevertheless, embodying all that, having that sun energy and oxygen, rushing into your mind, being thankful, getting that exercise, getting out there, getting your juices flowing. That’s what I try to do every morning.

I love it. My mind immediately went to Search Engine Optimization. You caught me on my heels there. I’m like, “He checks this Google stats every day.” Our third one is, what’s the best piece of advice you’ve ever received?

The best piece of advice I received was one word, engage. It’s probably worse now than before, but many of us try to multitask. If we realize it, here’s a hint. You’re not good at multitasking. It’s not a good thing. We try to do two things at once. They try to get you to watch TV, scan a QR code, and watch the game, then do something on your phone all at the same time. It’s like, “No, I want to watch the game.” Engage, what I mean by that is be there when you are there. That was that piece of advice and how I distilled that down to one word, engage, because you missed so much by not engaging.

Whether it’s a conversation with a long-lost friend or somebody at lunch, put your phone down. Get rid of the distractions. Engage in that person. That might be a friend that might need your ear. That might be a friend or a coworker or somebody or vice versa, that you may want to have a real conversation with. Not a swipe left, a swipe right, a comment, a thumbs up, but a real conversation. That gets back to engaging. Engaging with people, with your surroundings. Sometimes you need to get out of the building. Not out of a Zoom meeting or out of a call, and walk around, engage with yourself and be there when you’re there.

Our readers will know. I used to think I was a good multitasker and the older I get, the harder it becomes. Not only that, but cognition switch from one task to another. It takes you a while to reset. You might not think that checking that text message or that like post or whatever like that is that big of a deal, but I promise it has a mental drag on you that you might not be aware of.

It does and you should have to shift your thinking. Sometimes you lose your thought processes around something. You may need to focus on something and set up a task or set up a next step or process a piece of information. If you all of a sudden jump off into somebody’s world and they’re at some event doing something and now they’ve got your mind wandering into this. Where is that one thing that was in front of you that you needed to take care of?

Our fourth one is, what’s the thing that you’re most proud of in your life?

ICWI Justin Smith | Student Housing

Student Housing: Look for that natural inspiration that gets you up and going.

The thing I’m most proud of is being a father. I’m the father of two beautiful twins that my wife and I brought into this world. That’s something I probably should have done a whole lot sooner but I’m very proud of it. I enjoy being able to impart on them, many life lessons, seeing them grow, seeing them do the different things that they’re doing in their life. That’s exciting to me.

Are they identical or fraternal?

They are fraternal.

I’m a fraternal twin as well. Do they get along?

They do get along sometimes. That’s one of those things. Here’s a secret, they don’t want to be called twins. They’re doing well. They’re working with each other some days. Some days not but it’s a work in progress.

How old are they?

They’re eighteen.

I am going to tell you, they probably realized this around that age, but it took me until I was about 22-23 to realize, “Someone has been a part of my life every second that I’ve been alive,” beyond your parents. It’s cool. We were fraternal, so we didn’t get along. He chose one path. I chose the opposite to be different more than anything. As we’ve grown older, we’ve become closer together and it is cool to look back at the shared experiences that you have with another person that lived in the same house as you.

They’re not yet at the look backstage. They’re looking around throwing popcorn at each other sometimes but they’re good. I’m proud of them. It taught me more about myself than anything and how I deal with them and how I work with them. That’s been very telling and very interesting as an experience.

Our last one is, if you could sit down and eat a bowl of ice cream with anyone dead or alive, who would it be and why?

I wouldn’t want to sit down with any dead people for sure.

Put your phone down, get rid of distractions, and engage. Click To Tweet

You could have their ice cream though.

That sucks. I would say President Obama because he was such a dynamic president. You can say whatever. Folks once say, one all or the other. Whatever the case might be but he was definitely a first in America and someone that broke barriers in many respects. I’d like to understand his perspective on it and have that conversation about that. He’s walked in places that no other African-American male or female has and has a particular experience that would be good to hear.

Justin, fantastic conversation. If our readers wanted to reach out and learn more about you or the things that you’re doing, where’s the best place we could point them?

A couple of places. I do have a website, I’m also active on LinkedIn as well as Instagram. I like to put out different messages for those that are interested in the development construction and development construction space. I do these every Tuesday. I do a Construction Tip Tuesday, so you might find that out on social media. I’ve been putting that on Instagram and on LinkedIn, just different tips about different things that I’ve learned on construction sites or during pre-development. It might relate to anything. We might talk about windows one day. We might talk about HVAC systems. We might talk about paint color. We might talk about selecting finishes. I might talk about carpet or FF&E or whatever the case might be.

Every Tuesday, I do a little fun, little video and say, “Here’s a construction tip. If you’re doing this particular thing on your project, here’s something to take into consideration,” and that’s it. No sale, no this, no that, no book, CDs, tapes, none of that type of stuff, and nothing against that. I just like to share my knowledge.

Justin, thanks for being on the show.

I appreciate you having me, Matt.

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About Justin Smith

ICWI Justin Smith | Student HousingJustin Smith is also the founder of Relequity Enterprises, a Private Equity & Real Estate. acquires Multi-Family Real Estate in the SouthEast and Mid-West Markets. He is currently general partner on 360 units of housing in Des Moines, Iowa.

He also helps lead his client’s projects through the predevelopment stages, design management, construction and finally asset management lifecycle. Under his direct leadership 1,356 units of housing or (3,200 beds) were constructed over the last 6 years, exceeding $422M in project value.


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Matt Fore

I’m a son, friend, triathlete and investor. I founded ICWI to help others identify and remove the hurdles keeping them from personal and financial success. Through educational content and thought-provoking conversation, my goal is to help you create income streams so that you can live a more intentional life.

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