CAPRE’s Carolinas Student Housing Forum Preview: Texla Housing Partners’ Roger Phillips Says Patience is Key to Fixing Disconnects Between Buyers and Sellers
RALEIGH, NC — TEXLA Housing Partners is a real estate firm specializing in the acquisition, reposition and management of student housing and multi-family properties. The firm through its joint ventures and management affiliates currently manage assets throughout the U.S. exceeding $175MM in value. Roger Phillips is CEO of TEXLA Housing Partners and will be a featured speaker at CAPRE’s Carolinas Student Housing Forum tomorrow. Below, we connected with him to showcase his recent activity and observations.
CAPRE: Thanks for chatting with us today, Roger. Please share with us a bit about the kind of activity or trend lines you’re tracking with regards to student housing in the Southeast.
Phillips: We’re value-add buyers and managers. We just recently closed on a couple of projects in Texas that will be value-add opportunities. We’ve also picked up some third-party business in Florida and we are really trying to enhance that side of our business as well. We’re generally trying to track some of these markets that have been hit with too much supply and trying to follow to see when they’ll be able to get back to a stable position.
CAPRE: So what are you finding?
Phillips: Right now, a lot of them are not stable. College Station, Norman, Oxford and a host of markets have had too much supply. At some point they’ll hopefully get back to an equilibrium but right now they’re definitely favoring the tenant in terms of pricing and concessions, and all of those things we have to do in order to try to deal with too much supply.
CAPRE: What about the Carolinas specifically? How are those markets performing? Are you active there?
Phillips: There are markets in the Carolinas that are interesting. Chapel Hill has a high barrier to entry. It has great metrics, but it is extremely difficult to get into. So we’re closer to Texas. We end up spending more time on Florida and Texas than we are the Carolinas. But the Carolinas have got good fundamentals — enrollment growth, strong academic profiles, and all of those things that you look for. You’ve got North Carolina State, Chapel Hill, Eastern Carolina University, that a lot of people would find attractive. But for us, it’s more of a resource limitation, and not for a lack of interest. You can only cover so much ground.
CAPRE: Are the markets stable?
Phillips: ECU is, last I remember, a little bit unstable. But most markets I think are pretty stable. We’re looking for something more opportunistic, markets that are tilted in more of an imbalance. So we’re looking for recovery opportunities, and nothing against the markets in the Carolinas, but there are other markets that will meet our investment profile better. We’re looking for that upside, to buy at a good risk-adjusted basis and ride that improving market out.
CAPRE: Let’s take a broader view. What kind of impact are rising interest rates or the pace of the economic cycle having on your activity?
Phillips: We certainly keep an eye on interest rates and all of the economic measures out there. But there’s not a lot you can do about them. We just ride with them. There seems to be a continued trend in cap rate compression. Even with some moderate interest rate rise, we haven’t seen cap rates pushed to an uncomfortable level. But I’m sure that in a lot of markets, seller expectations and buyer expectations have a disconnect.
CAPRE: Tell us more about that disconnect between buyers and sellers.
Phillips: In one deal we bought recently — which we pursued for probably close to a year — the seller finally came down closer to meeting our pricing expectations. They did not meet their selling expectations. But it was kind of, either sell or deal with another cycle and the unknown that that brings. That could be true in any market but I’d say there is a disconnect there. I think that for us, with some patience, we can find the opportunities where you can come to terms and you can transact. It takes a lot of patience and persistence, knowing that some of these markets might be showing signs of improvement, but not yet meeting the buyer expectation.
CAPRE: What’s the bottom line then?
Phillips: You want to dip your toe in the water slightly to make sure it’s in recovery mode, but these markets don’t recover as quickly as they fall. College Station has probably fallen 25% in values and in rental rates in a lot of the market. 25% is a pretty big hit that will slowly rebound. We’re starting to see some improvement, but unfortunately it will not rise as quickly as it fell.
CAPRE: What are you looking forward to about CAPRE’s Carolinas Student Housing Forum this week?
Phillips: I don’t go to many conferences. There are very few that are regional to boot. So it will be interesting for me to see the interest at that level – who are the attendees? Are we going to see the national folks we’re accustomed to, or will there be more local and regional owners and developers and manager that are taking more of an interest in our business? Every year there are various conferences, and attendance continues to be on the rise, and interest in our student housing business is growing. So what does the profile look like?
CAPRE: Indeed. We’re looking forward to finding out as well. We’ll see you Thursday!
Hear more from Phillips at CAPRE’s Carolinas Student Housing Forum May 9, 2019. He will participate in the 9:30 am – 10:30 am panel “Carolinas Student Housing 360: Development, Investment & Leasing Activity in 2019”