Renovations, CapEx and ROI
by Amy Bigley Works
Crafting a relevant and balanced renovation strategy can lead to big pay-offs for operators and owners of student housing properties.
Right now, renovation is a hot buzzword in the student housing industry. With the right preparation and plan, a renovation can be a big pay-off for an owner’s return on investment, but it’s not always as simple as a fresh coat of paint or new appliances. Each property and market is different and requires its own dedicated research to understand if a renovation is needed and/or what type of renovation will offer the largest rent driver or value-add potential.
There are many approaches to renovating student housing properties, but the first step is identifying properties andsolidifying a plan. On the acquisition side, there are two trains of thought on how to approach a new asset: 1) simply as a cash-flow property with no renovations, or 2) as a value-add property with potential rent increases from renovations. For many in the student housing industry, the potential of rent increases from renovations wins.
Creating a successful property with premium rents that compete with new product is a huge draw, and many companies have crafted business plans around that idea.
Chicago-based The Scion Group has spent the last six years purchasing older properties (five to 10 years old) from REITs and other companies with a renovation as part of the initial acquisition plan. Birmingham, Alabama-based Capstone Real Estate Investments (CREI) has infused more than $9.1 million in direct construction expenses for 2014-2015 delivery and has nearly $22.5 million in renovations slated for a 2015-2016 delivery across its portfolio. And Raleigh, North Carolina-based The Preiss Company spent more than $10 million on renovations as part of either acquisition or recapitalization plans.