Built stable business with college kids
Homestead U’s housing nearby universities represented an untapped market
By Jeff Bell
Laura Formica likes to tell the story about the first time that Homestead America Founder and President Dave Anderson called her about joining his company’s fledgling student housing division in 2012.
Called Homestead U, the business had been launched in 2011 with the acquisition of the 1,008-unit University Village apartment complex near Ohio State University. More deals were in the works on properties near Ohio University, the University of Arizona and Texas Tech University.
“Dave was sitting by the pool in Arizona and said to me, ‘you should see how these college kids live,’ ” Formica said. “He was so excited his company was branching into student housing.”
Anderson’s enthusiasm was justified. Today, Homestead U has grown to 3,700 units with more than 7,000 beds for college students. It also is targeting additional properties in the Midwest and Southwest.
Homestead U is a division of Columbus-based Homestead America, a full-service commercial real estate management company that specializes in apartment communities. Working with Santa Monica, Calif.-based equity partner Columbus Pacific Properties, the company has created a student housing division that focuses on adding value, such as shuttle bus service and social programs, to apartment complexes it owns and manages.
Formica, 31, joined Homestead U as Marketing Director in July 2012 and now serves as Vice President of Operations. Here are highlights from her recent interview with Columbus Business First.
What’s the multifamily housing market like today in Central Ohio? Booming – there is an unprecedented amount of development that’s taking place. Since 2011, there have been a total of 13,000 units slated to come online, and 5,000 of those are with the downtown area and adjacent neighborhoods. So you’ve got a ton of development happening in the center of the city and also a lot of development in Hilliard, Polaris and New Albany.
Why did Dave Anderson decide to create Homestead U in 2011? The operations of student housing are different than conventional (apartments), so it made sense to branch out. On a big-picture level, he saw an opportunity in student housing, which is a sector of the industry that was not oversaturated with investors, capital rates were really low, lenders were very friendly and there was not a lot of competition. It was a sky’s-the-limit kind of opportunity.
On the face of it, owning and managing apartments that are rented to college students looks like a risky business. How do you mitigate and manage that risk? Obviously students, not all but some, can be a little harder on the apartments. But it’s like any other typical apartment lease – you charge back for damages and you factor that into your costs. You’ve always got standard wear and tear, and some people are harder on the units than others. We also require co-signers with the student housing we manage. When you’ve got sand and mom on the hook, it becomes a lot easier to collect the rent and on any damages.
Tell us about the process of finding the right property at the right location? The biggest thing for us is that we look at the university. Is it a tier one school? Is enrollment growing? You also look at (apartment) development in the space – what the supply and demand looks like. We also really look for value – add opportunities. Maybe (a property) has some deferred maintenance issues and doesn’t have a robust resident life experience and no social programming. Maybe it’s a little farther from campus and (residents) need transportation, so we look at providing a shuttle service. Overall, we look to grow the value of the asset, improve the property and raise rents.
What have been the keys to the fast growth of Homestead U division? Going from 1,800 beds to more than 7,000 beds in three years has been quick to say the least. We couldn’t do it without Columbus Pacific, our equity partners. They make it possible to move forward on these deals and manage these properties. That being said, from where I sit it’s our team of people, who are just incredible. Our strategy when we hire is that you have to have that entrepreneurial spirit and you have to be ready to adapt and be open to changing roles, sometimes on a daily basis. That’s really the key. You may just have to roll with it.
What’s been Homestead U’s experience with University Village in Columbus? We acquired that property in 2011, and it’s been 100 percent occupied every year. It was built in the 1950s and had been owned and managed by the same company for a very long time. it had been impeccably maintained, and we inherited a really great (management) team. It had the challenge of not being the newest kid on the block, but they had built a really solid brand…and it continues to perform well.
Where do you see Homestead U five years from now? I know the partners have very aggressive goals for growth. I would love to be sitting here five years from now at 20,000 beds on a national level. That would be amazing, and think it’s realistic. But it depends on the economy, (interest) rates and the kind of value – add opportunities that fit our niche. It’s also dependent on the number of investors that enter the student housing space. We’re seeing more and more, so it also depends on how saturated and competitive (the market) becomes. We’re in a great position. We’re focused on building a brand and a culture that our properties are identified with in Homestead U. As long as we continue to find deals that provide a great return and are in our wheelhouse, we’re going to keep moving forward.