Can you remember a major university folding its tent and going out of business? Can you imagine a scenario in which Notre Dame, the University of Oregon or Utah State University suddenly just disappear?
Neither can Brian or Patrick Nelson, who have grown Nelson Brothers Professional Real Estate to a $500 million company in 10 years by specializing in the niche market of private student housing. Brian Nelson recently filmed an Ask the Brothers educational video series to explain the company’s business model and to address common questions from investors.
The core question is always this one: Why invest in student housing?
“What we like most about student housing is using the university as an anchor,” Nelson says. “If you think about a university, you think about some of the most stable institutions in the country. These are well-funded schools that have been around for centuries.”
Most major universities are much older than the majority of blue-chip stock companies, and that stability makes student housing practically immune to fluctuations in the stock market, the real estate market and even the economy, Nelson says.
According to Stanford economist Caroline Hoxby, college enrollment has increased during every recession since the 1960s. During the 2007-2009 Great Recession, “the evidence shows that students were more likely to enroll in college and were more likely to stay in college,” says Hoxby, who co-edited the book “How the Financial Crisis and the Great Recession Affected Higher Education.”
The need for a college education has boomed in recent decades after good-paying jobs shifted away from manufacturing and into technology. Nearly 18 million students were enrolled in post-secondary, degree-granting institutions in 2012, up 48 percent from 1990, according to data from the U.S. Department of Housing and Urban Development. Over the same period, the number of students living in on-campus dorms increased by a bit more than 600,000, according to a 2016 article published in Bloomberg News.
The trend is expected to continue. Undergraduate enrollment is projected to increase to 19.8 million students by 2025, according to the National Center for Education Statistics.
So the booming college enrollment and constant influx of students, combined with the shortage of on-campus housing, provides a large, steady population of renters, and the high demand helps keep rental prices strong. Nelson Brothers’ practice of co-signing parents in the tenancy agreements provides further stability.
“I think if you talk to a lot of folks today, they would list stability, monthly income, cash flow, tax savings, long-term growth and capital-gains tax deferral – all of those things are very important to them,” Nelson said. “We think well-positioned student housing is well-qualified to hit on every major financial goal or objective that investors are looking for today.”