Is Purpose-Built Student Housing Canada’s Hidden Gem?
If you have been tracking recent commercial real estate trends, you already know there has been some movement within the asset class rankings. Retail and office classes have been hit hardest in the last couple years, and the once reliable multi-family class is now being outperformed by industrial and warehousing.
Throw in the emergence of a new type of socially conscious investor with ESGs on their mind, and we are starting to see an entirely new category of real estate vigour and innovation, namely towards affordable housing.
But affordable housing is a loose term and barely scratches the surface in terms of defining the need and opportunity that comes with this “new” real estate category. And perhaps it’s only in the fine print that one might realize that student housing falls into affordable housing too.
Daniel Goodfellow, Founder of WerkLiv, is a Montréal-based developer with one thing on his mind: purpose-built student housing. Forward thinkers like Goodfellow are looking at the nuances of affordable student housing to identify scope for profit and for impacting Canadian communities, and their students.
Working in an advisory capacity to WerkLiv, Daniel Labbé Senior Director of Mortgage Origination sourced the financing for the new development, Le Mildoré, located at 2025 Peel Street in Montréal. Despite the sophisticated understanding of the market that WerkLiv brings, and the fact that they are a certified B Corp company that genuinely cares about what they are doing to solve student housing issues, “It forces us to be good problem solvers.” says Labbé. “WerkLiv is operating in a niche market and its model challenges the traditional calculations used by most financial institutions. Because of the lack of understanding of this new concept, the only funding Le Mildoré has qualified for is construction bridge financing.”
WerkLiv has found success with smaller lenders, local to the communities its projects reside in, but this asset class does not yet qualify for other types of lending, or special affordable housing programs which creates an opportunity for forward-thinking investors.
Le Mildoré isn’t just another successful funding – it’s a novel approach in more ways than one to filling a shortage and gap in student housing. Canada ICI believes Goodfellow and his team have uncovered a diamond in the rough in identifying student housing as an asset class, one that will be a no-brainer for investors a decade, or two from now, when the data finally catches up to institutional funding models.
Purpose-built student housing isn’t required in every single location in the country; but it’s still necessary.
When it comes to purpose-built student housing, finding a lender can present more of a challenge as compared to other asset classes. The reluctance of institutional lenders comes in the form of loan terms. Labbé says, “it’s not that they aren’t lending on these assets, but most times it is the terms of the loan that show the banks’ aversion to the lack of data.”
The more product that’s out there; the more banks will see it as a viable, stable asset class.Daniel Goodfellow
Canada ICI dives into the track record of developers to determine project feasibility. Le Mildoré on Peel Street is just one of several purpose-built projects that Canada ICI has sourced financing for that they’ve been able to turn into profitable, revenue-generating real estate assets. The formula works. It’s repeatable. And there is a big gap to fill. The next step is to move across Western Canada, to which Goodfellow has already expressed an interest.
While some might say the industry doesn’t have reams of data to say student housing is a tried-and-true staple investment, the opportunity is for independent investors who are agile enough to spot investment opportunities before the market becomes saturated.
One thing that is for sure is that it seems to be working for Goodfellow, who is now paving the way through his own successful projects with no plans of stopping anytime soon. In his eyes, it could be another two decades before purpose-built student housing is recognized as an asset class in the mainstream.
We view student housing as the opposite. It’s a recession-resistant asset class. The number of students that travel for school is increasing year-after-year.
Full-time international enrollment at Canadian universities and colleges by year
From Niche to Mainstream
High school students are graduating each year, a large percentage of which will go on to post-secondary education. Many of those students will travel for the purpose of their education because a quality education and the experience will open doors for their career prospects.
The Canadian student housing market is thus far largely untapped and underserved. Additionally, recent world events mean that Canada is a top-tier country of choice globally for out-of-region students.
And in a post-Brexit, post-Trump, and post-pandemic world, Canadian tertiary education will be facing a tidal wave of prospective students. While Canadian institutions may be well-positioned to attract and educate this significant influx, our real estate market is not.
Annual change of total students by country (2001/2022 – 2018/2019)
Purpose-Built For Near Endless Demand
WerkLiv originated because Goodfellow noticed that student accommodation in Canada was failing to meet the needs of the end users. He was working in a property management company for student housing and noticed the trending dysfunction and most common issues.
The strategy behind WerkLiv’s developments is really very simple – tailor your product to your ideal customer’s needs and you will be the preferred choice.
In the current market, students end up finding lodging that will suffice. But developers like WerkLiv know that the post-secondary education experience isn’t just what happens in the classroom, but what happens outside of it. Purpose-built student housing creates an environment that allows students to get the most out of their education and daily life, while still getting the traditional college experience of living with their cohorts.
WerkLiv offers a fresh approach to the student experience niche market in Canada and addresses a significant shortage at the same time. Not only are they filling a gap, but they’re creating practical function, design, and value for students, investors, and buyers of their purpose-built assets.
The demand for student housing is going to increase in the short-to-medium term until it hits a plateau. We’re not there yet.Daniel Goodfellow
Know Your User and Protect Margins
It’s clear WerkLiv knows their user. Their data-centric approach has identified all-encompassing human to construction nuances and has worked to solve many common student housing issues surrounding the temporary nature of the stay, the daily life of the student, and the overall management and maintenance of the asset. By diving into the data, student-user surveys, and mapping movement inside the unit, they have identified many improvements that make their developments entirely unique.
WerkLiv originated out of a desire to create an affordable solution for students. Their design-focus and commitment to understanding the needs of the end-user allow them to create an affordable product. Le Mildoré offers three and four-bedroom apartments that will rent at $885 per student, saving students approximately $200 per month, as compared with other downtown Montréal accommodations. Its central location allows additional savings in transport as students can reach their educational institutions and other city attractions by foot, bike, or via transit.
Created with the student’s needs in mind, every element of the design has been analyzed, maximized, and accounted for in WerkLiv’s building code. Luggage storage for international and out-of-region students required addressing as did storage for the 25 pairs of shoes the average student owns.
Other important elements unseen to the naked eye include bedbug-proof furniture and 2-inch plumbing drains in the bathrooms meant to address both the worst-case scenario and most common maintenance issues in student housing.
The modern apartments are furnished with modular and functional built-ins and an inventory of furniture is kept on hand for ten years for ease of repairs and replacement. This makes moving in easy for tenants, and is better for the environment by reducing waste of temporary fixtures and belongings, and drastically reduces wear-and-tear on the property.
These are just some of the ingredients of what makes a robust, purpose-built student housing asset that aims to serve its tenants, while at the same time reducing frustration for management, and maximizing returns. It is these small details that work to increase the residents’ overall satisfaction and reduce the cost of managing student accommodations.
Get Involved Early
Canada is well-positioned today to be the first choice when it comes to an education in English, but the demographic of the student is a very specific niche. Students don’t only need affordable housing, but accommodations that are intentionally planned, designed, and built for this specific stage of their lives. Purpose-built student housing provides a solution to the issues surrounding affordable housing by fulfilling a specific need for students and by keeping that market pressure out of the mainstream residential market.
A niche asset class with a proven formula might be the next best way to diversify a commercial real estate portfolio and generate value. It’s not for every investor, but this is an up-and-coming niche with room for a few more creative and proactive investors. There will always be the tried-and-true multi-family assets to build incremental value. But right now, this is an opportune time to invest in affordable student housing projects in Canada.