As Occupancy Dwindles, College Dorms Go Beyond Students

The United States has the world’s largest student housing market, representing $11 billion in real estate investments, according to the National Apartment Association. And as the pandemic drags on and more universities feel the cash crunch, the endowment gap between legacy campuses like Harvard and Yale and smaller colleges is only going to grow.

“I think we’re really going to see a tale of two cities but also a tale of two universities,” said Laura Dietzel, partner and real estate senior analyst with RSM, an accounting firm.

The Cadence offered a rent-by-the-bedroom model before it was acquired by Pebb Capital in September for $33 million in a partnership with Coastal Ridge Real Estate. Pebb is planning a $12 million renovation to convert the property into studios and one- and two-bedroom apartments, bringing in amenities and design touches to attract young professionals, who are moving to Tucson in droves, many from nearby states like California, where real estate prices are significantly higher.

The building is a five-minute drive from the University of Arizona, Tucson, which makes it ideal for students wanting to live off campus. Once renovations are complete, rents will no longer be offered by the bedroom, said Mr. Jago, and he expects the renter pool will shift significantly.

“We’re going to become the prime downtown multifamily property for young professionals,” he said, “and maybe upper-class or graduate students, the kind who want to get away from the riffraff and the undergrads throwing up outside the bar.”

The student housing market is facing the same challenges as corporate office towers, both of which have been pummeled by the pandemic, said Patrick J. Sentner, an executive vice president for CBRE, a commercial real estate services firm.

“Each day that Covid drags on, the doubt and the debate about what is going to happen, office-wise with going back to work, is still going to be delayed until we get a vaccine,” he said. “And that’s exactly what is happening with student housing.”