ORONO, Maine — Campus Crest Communities, developer of the student housing in Orono known as The Grove, is one of a number of public companies across the country that have gotten involved in the student housing market to take advantage of increasing enrollments and insufficient on-campus housing options.
The Charlotte, N.C.-based company, which declined to comment for this story, was founded in 2004 by CEO Ted Rollins and UMaine alumnus Michael Hartnett, its chief investment officer.
“We basically looked at the student housing market, and it was apparent that there was a real need for our product,” Rollins said in an August 2011 interview with The Wall Street Transcript. “If you look at the industry as a whole, there are two general comments that you can make. One is that there is a limited supply. It’s constrained because of the lack of capital available, and it’s constrained with state budgetary cuts over the last few years. But at the same time, there is a growing demand. There are more kids going to college. They’re staying longer.”
Between 2000 and 2010, enrollment in institutions of higher education increased 37 percent, from 15.3 million to 21.0 million, according to the National Center for Education Statistics. While the number of students who live on campus also has grown during that period by about 21.4 percent, most schools have been unable to keep up, according to a May 2012 report from the National Student Housing Council.
Campus Crest Communities operates 39 properties across the country with nearly 21,000 beds. It has six more projects that it expects to be complete by the third quarter of 2013, with another six to eight in the pipeline to be completed in 2014, according to an investor presentation posted on the company’s website. The occupancy rate for the company’s properties is 93.3 percent, according to its third-quarter earnings report.
The Grove in Orono, a $25.3 million project with 188 units and 620 beds, was completed in the fall of 2012. Since its opening, several problems have been reported, including mold, frozen pipes, power outages and, most recently, flooding.
Campus Crest is not an ordinary company. In October 2010, it went public and became a real estate investment trust, also known as a REIT, which functions like a mutual fund in that it does not have to pay corporate income tax as long as it passes along at least 90 percent of profits to its investors in the form of dividends.
Other notable REITs with a large presence in Maine are Plum Creek, which owns 883,000 acres in Maine and has proposed a large development on Moosehead Lake; Chicago-based General Growth Properties, which owns the Maine Mall in South Portland; and Simon Property Group, which owns the Bangor Mall.
Campus Crest, with total assets of $680 million, is actually the smallest of the national REITs that have entered the student housing market during the last several years. Austin, Texas-based American Campus Communities was the first student housing REIT and is by far the largest with more than $5 billion in assets. Another, Memphis, Tenn.-based Education Realty Trust, has nearly $1.2 billion in assets.
Along with increasing enrollments and schools unable to meet the demand, another factor that could be driving such development is the recent recession, according to Jason Velazquez, a Florida-based consultant who works with student housing operators.
“Student housing — I wouldn’t say it’s recession-proof — but it held its own during the recession and that has become a very attractive point,” Velazquez told the Bangor Daily News on Friday. “Student housing has been named a good investment for multifamily, for REIT developments, and a way to diversify a REIT portfolio.”
With the market for student housing around top-tier schools saturated, Velazquez said developers such as Campus Crest are targeting second- and third-tier schools.
Currently, 10,900 students attend the University of Maine, but only 3,278 of them live on campus, according to Margaret Nagle, the school’s senior director of public relations. That means 7,622 students live off campus, either at home or in other accommodations in the community, such as The Grove.
The university does not track off-campus housing, Nagle said Thursday, nor does it coordinate with private developers such as Campus Crest that offer student housing.
The Grove in Orono went up in nine months, a feat made possible by Campus Crest’s vertically integrated business model, which allows it to develop properties quickly and efficiently.
Campus Crest is much more than just a development company. It actually consists of five primary operating companies: a development company, a general contracting company, a wholesale supply company, a property management company and an asset management company, according to Rollins’ interview with The Wall Street Transcript.
“For us, it was important to create a company that could deliver a standard product in any market across the United States. And so what we did was we made a decision in the beginning to create a portfolio of companies that could execute this strategy and control the process from start to finish,” Rollins said in that interview. “We believe this vertically integrated business model enables us to deliver properties economically while maintaining consistency in our building design, construction quality and amenity package.”
The company’s turnkey approach to development could lead some to think that corners could be cut, but William Murphy, Orono’s code enforcement officer, said all the buildings at The Grove in Orono were built to code. Murphy said, however, he had heard that the configuration of the complex, the specific combination of apartment buildings with town homes, was a new one for Campus Crest. The company declined to comment.
“I don’t know if that led to what’s being reported these days, but I’ll fall back on what I said to [BDN reporter] Dawn Gagnon: I was there on a daily basis, and the buildings were constructed to code,” Murphy said Friday.
The Grove wasn’t Maine’s first privately developed student housing. Portland’s first private student housing development, Bayside Village, opened in 2008. Like The Grove, Bayside Village generated early headlines about rowdy behavior. It wasn’t a national player like Campus Crest, though, but rather a local developer who took on large amounts of debt to fund the project and eventually was foreclosed on. As a result, the project has gone through several owners. Its owner is now Blue Atlantic Portland LLC, a subsidiary of Chicago-based Blue Vista Capital Partners, according to the Portland assessor’s office.
It’s likely the trend of private development of student housing will continue. The National Center for Education Statistics projects that from 2010 to 2020, college enrollment of students under 25 will increase 11 percent while enrollment of students older than 25 will increase 20 percent.
“I have no reason to believe that development would slow down,” Velazquez said. “Student housing is not immune to the need to continue growing, and development in college towns seems to be the way that we’re going about that as an industry. I don’t see that slowing down at all.”