Preferred Sells Its Student Housing to TPG Real Estate for Nearly $480M

Preferred Apartment Communities has entered into an agreement to sell its student housing portfolio to TPG Real Estate Partners for $478.7 million. The transaction is expected to close in the fourth quarter.

Marketed by CBRE, the portfolio includes eight, high-quality student housing communities in Arizona, Florida, Georgia, North Carolina, and Texas. The communities include more than 6,000 beds with a range of amenities.

The move backs up a shift in Preferred Apartment Communities’ goals, said CEO Joel Murphy in prepared remarks. “This is consistent with our previously stated objectives to exit the student housing space, simplify our focus to our core Sunbelt multifamily business, and improve our balance sheet.”

Preferred’s decision to exit student housing may be coming at a precipitous time, according to new  data RealPage will be releasing Tuesday in a webcast. It found that the Fall semester started with the weakest leasing seen in a decade of covering the sector, with the share of total beds leased at the end of August is 87.7%. That’s almost 4 percentage points off the August 2019 figure of 91.4%, according to RealPage.  In addition, occupancy is down year-over-year at two-thirds of the schools tracked.

Recent research from Zillow also throws some shade on this asset class. It found that apartment rents in college submarkets are down .5% year-over-year as of August, the first time that college area rents have decreased since 2017. Online education has fueled the decline in apartment rents and apartment demand in college towns, Zillow found. 

TREP maintains its purchase moves it into new markets with assets it feels are strong, according to principal Ty Newell. “This transaction represents a scaled entry for TPG Real Estate into the US student housing sector and an extension of our student housing initiatives in Europe. We believe the assets in this portfolio will benefit from their adjacency to high-quality academic institutions that are well positioned to weather the challenges resulting from the Covid-19 pandemic.”

In spite of these near-term challenges, these student housing communities are poised to experience a combination of strong regional demographic fundamentals and favorable supply dynamics that should continue to support performance, he added. 

And some of RealPage’s data supports Newell’s optimism. Convenient-to-campus conventional projects are still getting a little rent growth, with pricing up 1.5% year-over-year, it reports. That compares to annual rent change of -1.4% in the market at large.

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