Although investors in private student housing have cited concerns about vacancy rates and overbuilding in the Champaign-Urbana market, even more substantial student housing complexes are slated to open this fall.
And although enrollment at the University of Illinois has crept up in recent years, that growth doesn’t match the number of new apartment units coming onto the market.
Private appraisals filed in recent years with the Champaign County Board of Review, obtained through an open-records request, show that the owners of at least two major student apartment complexes in Champaign were concerned about vacancy rates.
A report done for the owners of the mammoth Latitude Apartments (a two-building, six-story, 519-bed complex along University Avenue) in 2017 said that a survey done of seven major apartment developments in and near campus showed an average occupancy rate of 84 percent.
Another survey done earlier for the owners of the HERE Apartments at 308 E. Green St. said occupancy ranged from a high of 100 percent at several complexes to 74 percent at HERE and 66 percent at another Campustown apartment building.
The attorneys for the Latitude owners (represented by the Chicago firm of Madigan & Getzendanner, whose principal is Illinois House Speaker Michael Madigan) cited vacancy rates — and difficulty filling retail space — in arguing for lower property assessments before the board of review and the state Property Tax Appeals Board.
“The overall occupancy rate in the area is 84 percent,” wrote appraisers for Latitude’s owners, a Centreville, Mich., company identified as Illini North Development LLC). “The subject (property) also has several first floor retail units. Demand is weak for these units and leasing is not occurring as projected. While there is reasonable strong demand for retail properties to the south, in Campustown, there is minimal demand at the subject’s location.”
Still, said the appraisers for Latitude, the outlook for the private student housing sector remains “very favorable.”
But “overbuilding of projects can easily provide an oversupply” and “(o)ff-campus projects are only successful if in close proximity to the campus.”
Property assessment issues at the close-to-campus, 526-bed HERE development included not only a double-digit vacancy rate but more importantly noted a unique structural problem that led to higher than anticipated costs.
The building was designed to include an automatic parking system in which the driver would pull into a first floor parking area with a mechanical system that would raise the vehicle to either the second, third or fourth floor and move it to a parking spot. The vehicle would be driverless; the system was designed to be fully automatic, said the assessment appeal. But the company responsible for designing the parking system went out of business, forcing the building’s owners to configure a system using freight-type elevators. With no automatic system, vehicles have to be driven by trained valets at a cost estimated at $250,000 a year.
Meanwhile, more apartment units are on the local market this fall, including the 538-bed Octave Apartments at 210 S. Fourth St. on the site of the old Marquette School, the 476-bed The Retreat at Illinois at Lincoln and University avenues in Urbana and the 208-unit Seven 07 building at 707 S. Fourth St., Champaign. And more units are in the development pipeline for years after that.
Any concerns that citizens or city officials may have about apartment overbuilding don’t matter. If developers meet zoning and building code requirements, city governments are obligated to approve proposals, said Bruce Knight, Champaign’s planning and development director.
The private student housing market is being driven, according to an analysis in Latitude’s appraisal, by the short-term growth in university enrollment combined with a reluctance of universities to build housing.
“As state and federal funding diminishes, and as endowment funds lose value, universities across the country are finding it more difficult to add on-campus housing to meet growing demand; this pent-up demand will force more students off-campus, driving rents and ultimately values of student housing assets,” the report said.
But what the report didn’t address — and what for now is an uncertainty — is what happens when the higher education bubble bursts, either because of population reduction, more online learning, the cost of a degree and the perceived value of one, or other factors including federal proposals that would trim the number of foreign students at schools in the United States.
What happens to university communities and their big inventory of student housing when there are fewer students and an overabundance of apartments?