Parallel’s David Pierce Talks Changing Demand Profile in Student Housing: Renters Aren’t Driving, Want More Efficiency, Don’t Need Amenities
DENVER, CO — David M. Pierce is a Principal with Parallel Company, where he is responsible for all investment activities and the direction of the company. He also oversees all development and investment activities. Mr. Pierce has over 27 years of design, development, construction and real estate experience, of which, the first 14 years he successfully served as a practicing architect. Mr. Pierce formed Parallel CO after the sale of the University House Communities portfolio in 2016. At University House Communities, Mr. Pierce served as Executive Vice President of Development and over a 12-year period led the development team and delivered approximately 11,000 beds of Class A student housing. Mr. Pierce has led the sourcing, design, development and delivery of multiple mixed-use high-rise student housing developments in major markets in recent years. David will be a featured speaker at CAPRE’s Denver Student Housing Forum. In this Q&A, we connected with him below about changing demand and demographics in student housing.
CAPRE: Thanks for chatting with us today, David. What is the most exciting opportunity in the student housing sector?
Pierce: One of the most exciting things we’ve run across recently is that there has been a gradual shift away from the glitz and glamour that we saw grow in the student space in the years following the last recession. In the last three or four years we’ve seen student developments get more purposeful – more about academic success, life success, and school-life balance. The amenities that we have focus more on exercise, studying, and mental health. Think more yoga, and less golf simulators.
CAPRE: Interesting. Is that because of a changing demographic?
Pierce: The changing demographic has come right alongside another trend. This isn’t always the best news for an industry, but we’ve seen a broader more price conscious market open up. We’ve in turn been working on broadening our pricing structure to open up our product with more affordable entry-level pricing. As a result we’re delivering some rents that weren’t so attainable a few years ago
CAPRE: How are you making those rents pencil?
Pierce: By being more efficient with space and occupancy – think less space, and sometimes double occupancy, for example, as opposed to where we were in the same buildings a few years ago. We’ve built a few more 5 and 6 bedrooms than in the past. Also going taller and being able to get a few extra floors in helps us find some opportunities.
CAPRE: Very interesting.
Pierce: We haven’t abandoned the 1 and 2 bedrooms units, or the traditional 4/4 with all the bells and whistles– but we like to account for a broader diversity of future student residents. A third or fourth year student might still be looking for a 1 or 2 bedroom, or more privacy in a 4/4 and they’re a very important resident, since they’re more likely to have their academic in order and likely to stay and graduate.
CAPRE: How are different sub-markets across the country performing right now?
Pierce: There’s definitely a difference between a name-brand coastal school in California and something that’s in the south or the Midwest, in terms of price and the density to get the numbers to work. You have to think about the time it takes to get it done too. In some markets, we’re seeing shared bedrooms, to the extent that you’re getting 10 or 12 kids in a single unit. We’re not seeing that in the middle parts of the country, with a few rare exceptions.
CAPRE: So what distinctions are setting the markets apart from one another?
Pierce: The biggest difference I see is actually within Tier I schools – the high rise product has become the go to vs the mid-rise or garden product. People are still doing garden product, and I actually think you’re going to see more people do garden, because of that price point. Not all of these students are going to be able to rent at the high-rise level. But there is some risk in going back to garden style, just because of the distance.
CAPRE: Tell us more about that.
Pierce: Well a big trend we’re seeing is that fewer and fewer kids are taking their cars, and they need either be close to campus or depend on transit. So you might need to provide some kind of shuttle or otherwise make sure there’s reliable transit.
CAPRE: What is the biggest headwind facing the student housing sector
Pierce: There are a few, but construction costs are a big one. And there’s a little bit of uncertainty in the market about what’s coming down the road. Are interest rates going up? Are cap rates stabilized or are they going to reverse? It makes speculating on a 5-year projection pretty difficult. The national averages will say construction costs have gone up 4-6% annually but in the markets we’re active in we’ve seen increases of 10 to 15% in one year. That makes it very difficult to underwrite a deal that can take 18 months to get done. Underwriting that speculation has been very challenging.
CAPRE: What else?
Pierce: And some markets are seeing oversupply, so you have to be careful when you’re evaluating a really dense market. They may have a very deep resident pool, but you have to carefully analyze the supply and demand to make sure the supply will still be there after the pipelines come to fruition. In general, if I’m in a market looking, two or three or more other firms are likely there looking as well. If we’re all successful, it puts a lot of beds out at the same time. A lot of these healthy markets are being heavily speculated, and that could change the demand quickly in a two or three year time frame.
CAPRE: What market are you most bullish on?
Pierce: I’ll speak to the one we are most active in. We’ve had a lot of recent success here in Austin. We delivered a flagship deal in 2016 from University House / Scion that continues to lead the market. We’re delivering a project in August, The Muze which is 100% pre-leased and are breaking ground on another very exciting deal in September. Austin though is one of those markets getting a lot of speculation right now. If you don’t already have something in the pipeline, there’s a lot coming from multiple seasoned groups in the next few years. We also like several markets new and old in the West and Pacific Coast that we are currently pursuing.
CAPRE: What are you looking forward about CAPRE’s upcoming Mountain West Student Housing Forum in Denver in August?
Pierce: We’re looking forward to catching up with our friends and competitors. It’s always nice to see some new faces, meet some new people, and catch up with the people we’ve been working with or competing with for the last 10 or 15 years. It’s always good to hear first-hand about what everyone is working on, and what their successes and challenges are.
CAPRE: Thanks for your time, David. We’ll see you there!