Despite skyrocketing tuition (and student loan debt), many young adults are still enrolling in college. Scarce jobs means that more and more high school grads understand that a university degree is a necessity, no longer just an option.

An investor might ask, 'how can i take advantage of this trend?' Other than investing in for-profit schools, such as online educator Strayer Education Inc. (STRA), they can have a look at companies that provide or manage student housing. (For related reading, see: Get More Than An Education In Student Housing REITs)

Student Housing REITs To The Rescue

According to the Department of Education’s National Center for Education Statistics, college enrollment will keep increasing through 2019. High schools will produce more than 3 million graduates annually until the 2018-19 academic year. During the 1993-94 academic year, high schools produced roughly 2.5 million graduates.

The average American student is now attending classes full-time and has stretched their time in college from four years to more than five. Add in the rising enrollment of foreign students in American universities and you have huge number of potential graduates staying in college longer.

All of this begs the question: 'where are all of these kids going to live?'

Not in dorms, at least not the ones older folks will remember. Space-challenged institutions already have more students than available dormitory rooms. And large state universities are facing dwindling budgets and are reluctant to build dorm capacity. As a result, universities and students are turning towards the private sector for a solution. Enter real estate investment trusts (REITs) that focus on student living and accommodations.

College towns have always catered to the housing needs of students with a variety of lower-budget houses and apartments. But today's student is demanding more. Garden-style apartments and townhouses are now common, some even feature luxury appliances, yoga studios and volleyball courts. That focus on luxury rather than cinder blocks has also driven up rental rates for student-focused REITs. Capitalization rates and rental fees for the student housing REITs remain some of the juiciest in the commercial real estate sector.

Aside from off-campus living, private student-housing purveyors are quickly entering the on-campus housing space and have recently inked deals to build new dorm-style apartments within colleges in exchange for long-term licensing fees. All in all, the continued trend of higher enrollments bodes well for the firms that supply student housing.

Buying Your Own Dorm

For investors looking to get into the student housing game, several traditional apartment-focused REITs, such as UDR Inc. (UDR) and AvalonBay Communities Inc. (AVB), have operations near college campuses. However, they aren’t pure plays. For more focused exposure, investors have better options.

The biggest REIT in this space is American Campus Communities Inc. (ACC). ACC currently owns/operates more than 167 different communities totaling a whopping 102,700 beds. And as of the beginning of June, 83.2% of all those beds were rented for the fall semester. That hefty occupancy rate has allowed ACC to increase its rents by 2.1% this year. However, American Campus isn’t done yet. The firm continues to develop new properties a blistering pace. And that includes a hefty dose of on-campus housing for various schools. All in all, increased occupancy and higher rents has allowed ACC to report robust cash flows and the firm recently upped its dividend by 5.6%. American Campus now yields 4%. That’s more than the broad REIT benchmark Vanguard REIT Index ETF (VNQ).

Not to be outdone, slightly smaller rival Education Realty Trust Inc. (EDR), or EdR as it’s now called, could be a great pick. EdR owns or manages 69 communities at 57 different universities in the U.S. And like ACC, it has gotten into the on-campus housing market. Recently, the REIT has begun a series of ambitious dormitory projects for the University of Kentucky. EdR currently yields 4.1%. (For more on similar REITs, see: Return of the REITs).

Finally, for those investor’s seeking potential growth from a turnaround play, Campus Crest Communities Inc. (CCG) could be a great pick. CCG went public at the end of 2010 but has stumbled over the last year. Its shares have fallen around 40% since the start of 2014. The bulk of the drop could be attributed to bad results coinciding with a major asset purchase. Once integrated, those assets should help turn the tide; its FFO has increased in recent quarters. CCG does compensate investors for its smaller stature and bigger risks with a large 7.4% payout, however.

The Bottom Line

College enrollment continues to surge. And with all those students needing a place to rest their heads, operators of student housing real estate should continue to benefit. Investors willing to 'head back to school' can be rewarded with better-than-sector-average dividends and gains.

Related Articles
  1. Chart Advisor

    Invest In REITs With This ETF

    It can be hard to figure out which REIT is the best bet. But a quick look at this REIT ETF (and its holdings) is an excellent starting point.
  2. Credit & Loans

    Millennials Guide: Buying Your First House

    Millennial homebuyers need to research a lot of things, such as how much to pay, down payments, PMI, FHA loans and special programs for first-time buyers.
  3. Home & Auto

    Living in New York City: Co-ops vs. Condos

    Buying an apartment in New York City means familiarizing yourself with the pros and cons of these two types of dwellings.
  4. Mutual Funds & ETFs

    4 Mutual Funds to Consider If Interest Rates Rise

    Learn what mutual funds will perform best if interest rates rise. Interest rates can rise due to inflation or to an improving economy.
  5. Personal Finance

    Millennials Guide: Before You Move in with Your Partner

    Living together can be romantic. But at what point does co-habitation become a common-law marriage? It's wise to know the legalities of your relationship.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares US Real Estate

    Learn about the iShares US Real Estate fund, which holds shares of equity and nonequity real estate investment trusts incorporated in the United States.
  7. Investing

    Why Google Chromebooks Are a Hit in Schools

    Google Chromebooks have been on a roll in the education technology market. What are the reasons for this success?
  8. Chart Advisor

    Real Estate Investment Trust ETFs Offer Stability

    Risk-averse traders are turning to real estate investment trusts. We'll look at a popular real estate investment trust ETF and few of its top holdings.
  9. Credit & Loans

    Avoiding Red Flags with Online Mortgage Lenders

    Using an online mortgage lender can be convenient, but how do you know you can trust one? Follow these tips to make sure the lender is legit.
  10. Home & Auto

    Basics and Differences of Co-ops, Condos & Condops

    Before purchasing a condo or a co-op (or the rarer condop) apartment, here are some basics every purchaser needs to understand.
RELATED TERMS
  1. Real Estate Investment Trust - ...

    A REIT is a type of security that invests in real estate through ...
  2. Zombie Foreclosure

    A situation (or a home in this situation) that occurs when a ...
  3. Fair Housing Act

    This law (Title VIII of the Civil Rights Act of 1968) forbids ...
  4. American Association Of Insurance ...

    An advisory organization founded in 1975 that develops insurance ...
  5. Policy Or Sales Illustration

    An educational tool that shows a prospective or new insurance ...
  6. Affordable Market Value (AMV)

    The sale price of a multi-family residential housing unit sold ...
RELATED FAQS
  1. What is the difference between adjusted and regular funds from operations?

    While regular funds from operations measures the cash flow generated by the operations of a real estate investment trust ... Read Full Answer >>
  2. How can I use the funds from operations to total debt ratio to assess risk?

    The funds from operations (FFO) to total debt ratio is used in fundamental analysis to determine a company's financial risk. ... Read Full Answer >>
  3. How much of the global economy is comprised of the real estate sector?

    The commercial and residential real estate industry generated an estimated $3 trillion in 2014, with some 35% of sector revenue ... Read Full Answer >>
  4. How was the American Dream impacted by the housing market collapse in 2008?

    The American Dream was seriously damaged by the housing market collapse in 2008. In many ways, the American Dream is a self-fulfilling ... Read Full Answer >>
  5. Why does the real estate sector appeal to growth investors?

    Growth investing is an investment strategy aimed at identifying stocks with strong potential for growth and capital gains. ... Read Full Answer >>
  6. How much of an institutional pension fund's portfolio is typically investing in real ...

    It is estimated that institutional pension funds in the United States typically have about 5% to 10% of their assets allocated ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!