Properties On The Move

Dated: 03/30/2015

Views: 277

Principal Financial Group, an Iowa-based Fortune 500 firm, made a splash in Eugene’s real estate market this month.The global investment giant, which has more than $500 million in assets, forked over $45.5 million for a six-story student apartment complex at 12th Avenue and Patterson Street, just west of the University of Oregon.The purchase was the priciest acquisition of a single Eugene property in at least a year, and possibly the largest since 2008.But it was far from the only property catering to University of Oregon students to change ownership lately. Over the last year, at least eight small to medium-size student apartment complexes with a total of 222 housing units have sold in the area between University and Willamette streets, Lane County property records show.All but one of the complexes was built under ownership by local developers. Most — five of the eight properties — were newer ones, built in 2012 or 2013. And all but one of the complexes sold to out-of-state buyers.Some real estate analysts say the sales could be evidence of the UO’s heightened visibility among national investors. But others say it could also reflect increasing concerns of an overbuilt student housing market among local investors.“Typically, if there’s more product coming onto the market, eventually rents are going to soften and projects have to offer concessions like three months of lower rent” to compete, said Bill Reid, a principal at Hillsboro-based PNW Economics consulting firm, who specializes in real estate.“In general, if a market-rate apartment’s owner is thinking their project is full right now, and they’re certain they’re getting the maximum value they can, they might want to sell” before more supply comes on the market, Reid said.That trend could play out in earnest here over the next year.With two mammoth student housing projects set to come online this fall — the 512-bedroom Hub student housing tower on East Broadway and the 192-unit complex at 2125 Franklin Blvd. — and stagnant enrollment at the UO, real estate analysts and builders increasingly wonder who’s going to sleep in all these rooms.“With Capstone and the Hub and some of the other projects, it’s my opinion the entire Eugene response to student housing led to it being overbuilt,” said Ed McMahon, executive vice president of the Home Builders Association of Lane County.McMahon said large tax breaks approved by the Eugene City Council to lure the Capstone and Hub developments may have done as much to create an oversupply as it did to address what was once an under-supply of apartments. None of the eight complexes that sold in the last year received the tax incentives, and the program is currently on hold while the council looks to rewrite the rules.Of the eight properties that sold over the last year, Los Angeles-based M&A Real Estate Partners bought three of them, all small complexes: a 10-unit apartment complex on High Alley, an eight-unit complex at 18th Avenue and Oak Street and a six-unit complex on East 18th Alley.The firm owns 21 student housing projects in college towns across the country. But it’s most heavily invested in Eugene, where it owns eight small apartment complexes.“There’s been a plethora of that large, new supply in the Eugene market, and it really did extremely poorly in general last year,” said Douglas Buchalter, M&A’s senior director of acquisitions, saying his opinion was based on conversations with local developers. “Our philosophy is, if we can buy smaller projects that are really well located and that offer larger, sort of townhome-style living, there’s incredible demand for that kind of project in Eugene.”Some economists say investors are shrewdly investing in student housing in growing college towns like Eugene, even amid a possible oversupply, with a view to the long-term.“If you look at inflation from the bottom of the financial crisis today, where are the two highest areas of inflation? College tuition and rent,” said Mark Kralj, a partner with Portland investment firm Ferguson Wellman Capital Management, which tracks real estate and financial trends across the northwest.Kralj said years of tuition hikes at UO, Oregon State University and many other colleges across the country have led to families expecting to pay more than ever to send a child to school.For now, that means investors can feel relatively comfortable charging high rents for high-quality amenities many of the newer complexes offer, he said.“In today’s world, I think it makes sense” to buy student housing, Kralj said. “But down the road, you could see less pressure on rent prices and fewer students looking. I think it will be more difficult to raise prices if more people start asking, ‘What is the price of a four-year education really worth?’?”

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