Tucson Luxury Student Housing Construction Booming

BY: Carli Brosseau
May 27, 2012

The District on 5th Tucson Student HousingIf all goes as planned, more than 2,700 university students will move into six new luxury student housing complexes by the start of the 2013 school year.

The privately built student developments near the university and along the modern streetcar line are expected to fill up with young residents attracted by resort-style pools, study rooms, spas, gaming rooms, golf simulators, movie theaters and tanning beds.

But as the dirt starts flying, the University of Arizona is backing away from earlier enrollment projections of a 12.5 percent increase over the next five years due to the slow economic recovery.

So rather than serving a growing student body, the new complexes likely will be home to students moving from Tucson’s 13 current private student complexes, many of them on the outskirts of town.

“Properties that are further away will get hurt,” said Bob Kaplan, a specialist in multifamily housing with PICOR Commercial Real Estate Services.

A probable result, real estate experts say, is that the outlying properties will lower their rents, setting off a price war.

That scenario may already be playing out. The Innkeeper, a 196-unit student housing complex also known as College Place apartments at 1601 N. Oracle Road, sold for $3 million earlier this month. The 27-year-old building had been on the market for more than $8 million, and the former owners had about $23 million in the project, said Realtor Hank Amos, who represented the buyer.

Although the complex had been struggling to attract students – with 63 percent occupancy because of its relatively undesirable location, according to a University of Arizona consultant – Amos thinks the project will now be a success.

“This place has been really fixed up,” he said. “Because of the price they bought it at, (the new owners) can offer lower rates. … From a price standpoint, this is going to be very affordable for students.”

Renting by the bed

Student housing is different from traditional apartment living.

Students rent by the bed, not the unit, and complexes have far more common space for amenities than would pencil out financially for an apartment complex.

The rooms typically are furnished, and each bed generally is paired with its own bathroom and shared space. Amenities like pools, fitness centers and study spaces are expected – the most valued extra, a 2009 University of Arizona market study found, is tanning beds.

After that study concluded that 2,000 to 5,000 more beds were needed, local developers and national powerhouses have rushed to put together deals. They’re motivated by typically higher profits than traditional apartment complexes, long-term population growth and student enrollment projections and the modern streetcar, now under construction, that will link the UA to downtown.

The resulting building boom has begun. The District on 5th is under construction and has been fully leased for months. A cottage community south of 22nd Street has broken ground, as has a 14-story tower on North Tyndall Avenue. Construction of two more buildings and demolition to make way for a third is to begin next month.

Students and downtown

The students who urban planners said were necessary for downtown Tucson’s revitalization may soon live there – and, retailers and restaurateurs hope, patronize downtown businesses.

The university’s encouragement of student housing downtown is part its larger expansion plans, said Jim Van Arsdel, assistant vice president of student affairs and university housing. There is little contiguous land for the school to develop, and the UA would wants to support the city’s goals of increasing the student population downtown and pumping up transit ridership, he said.

There will be about 850 more beds on campus next year after two new residence halls open, even factoring in a smaller lease for a university-operated but privately owned property. However, little more on-campus housing will be developed, Van Arsdel said: “I can count the number of potential sites on two fingers.”

The UA doesn’t want to venture into off-campus housing or financially involve itself in public-private partnerships because it is protecting its bonding capacity, Van Arsdel said. “We don’t want to create vacancies in our own system,” he said.

The risk, then, must be borne by private developers, who aren’t exactly balking. The university put out a request for proposals that extended no financial guarantees or assistance to developers. Instead, it offers them an “affiliation.”

Plaza Centro, a two-building development at the corner of Congress Street and Fourth Avenue, is expected to benefit from its successful partnership bid by being able to use the UA’s logo in its marketing and receiving referrals from the school, though the exact terms of the deal have not been worked out.

The other successful bidder, Peach Properties Inc., has backed away from its proposal to put another student housing development at the southwest corner of Broadway and South Fourth Avenue.

The UA may eventually open the process again to other developers, though several, such as The Junction at Iron Horse LLC, which is developing a 198-bed complex in the Iron Horse Neighborhood near The Buffet Bar & Crock Pot, have decided to forgo pursuing school ties.

“The key is location,” said Roy Drachman, a real estate broker representing The Junction’s developer. At North Third Avenue between East Ninth and Tenth streets, the property is within walking distance of the university and near the modern streetcar line.

Miles Orth, the chief operating officer of Campus Apartments, which developed The District on 5th as well as three other Tucson properties, agreed. “We are confident that our properties are going to lease out with or without an affiliation,” he said.

Rent: $320 to $1,027

Rent will be determined by location and vacancy rate. Now, monthly rents posted at private student housing developments across Tucson range from $320 to $850 per bed, depending on the complex and how many people are sharing a bedroom or common space.

In contrast, on-campus beds cost about $545 to $1,027 a month per bed, depending on how many students share a room and in which residence hall.

At the newest private complex to lease out, The District on 5th, rents were between $675 and $765 a month per bed. Some developers suspect they will be able to command even more if their complexes prove to be popular.

The vacancy rate at the 13 existing private student housing complexes in fall 2011 was 7.2 percent, said a report compiled by Mike Chapman, a multifamily housing specialist at CBRE Inc. The same semester, the average rent per bed in those complexes was $450, the highest level in the past six years.

For many of those properties, it’s now a waiting game. None announced a major change in response to the new developments’ imminent opening.

Some operations, such as the more-than-decade-old NorthPointe, 850 E. Wetmore Road, have not been negatively affected – not yet, at least.

“I cannot say it has hurt us at all,” said community manager Samantha Wilson. She estimated that the complex, many of whose renters work at the nearby mall, would be fully leased by mid-June despite rent rising $20 from last year.

Still, the development is looking hard at the competition. “It’s always pretty nerve-wracking when a new competitor arrives,” she said.

Ted Mehr, the owner and manager of Sahara Apartments, 919 N. Stone Ave., is less optimistic.

“We’re surviving,” he said, noting that he has appealed to the university for years for referrals on the basis of his complex’s emphasis on quiet, studying and careful supervision by management. “We try to stick to our niche.”

More supply than demand

It’s not clear yet how students will disperse, but it is clear that large numbers of them – many of them graduate students – live outside of university housing.

In 2009, an estimated 18,253 of 38,057 students lived in housing other than on-campus housing, fraternity housing, 40-plus unit private student housing and 5-39 unit private student housing, the 2009 university market study showed.

Those students aren’t knocking down doors, however, to live in smaller units within walking distance of campus, even at rock-bottom prices, said Jim Hostetler, who leases about 40 apartment units in the UA area for a maximum of $670 for two bedrooms.

“I don’t know if I’ve ever seen it so bad,” said the 40-year veteran of the leasing business. “There’s way more supply than demand.”

The big-time developers aren’t convinced, as there are still several more projects in the pipeline.

Campus Acquisitions has another development planned for Park Avenue that’s slated to open for the fall 2014 semester.

Local developer Mike Noonan, once a partner of Campus Acquisitions, has been working to put together a deal for a development on North Euclid Avenue.

HSL Properties is considering transforming Hotel Arizona into student housing. And industry heavyweight American Campus Communities bought almost a full city block on Drachman Street one block west of Mountain Avenue last year.

Student housing projects set to open in fall 2013


The District Northeast corner of East Campus Apartments. 756 Under construction.

on 5th Sixth Street and North Arizona

Avenue, 550 N. Fifth Ave.

The Retreat Southeast corner of South Park Landmark Properties and 774 Under construction.

at Tucson Avenue and East 22nd Street, Harrison Street Real

920 E. 22nd St. Estate Capital.

1020 Tyndall South of East Speedway Campus Acquisitions. 562 Under construction.

on the east side of North Tyndall

Avenue, 1020 N. Tyndall Ave.

Plaza Centro On top of Plaza Centro Garage, Capstone Properties and local 160 Construction to begin in June.

345 E. Congress St. Jim Campbell’s OT Kino LLC.

Plaza Centro On the site of the old Greyhound Capstone Properties and local 284 Construction to begin in June.

Greyhound bus station, 350 E. Congress St. Jim Campbell’s OT Kino LLC.

The Junction Southeast corner of East Ninth The Junction at Iron Horse LLC. 198 Demolition on the former

at Iron Horse Street and North Third Avenue, Crescent Electric site is to

504 E. Ninth St. begin June 1, with building

to start in August.

Contact reporter Carli Brosseau at 573-4197 or [email protected]. Link to source article. Photo credit: David Sanders, Arizona Daily Star.

Let's Connect!

    Would you like to speak with a broker?

    Contact Us