USC is known for its academics and athletics. But among Los Angeles real estate investors, it has another claim to fame as a reliable and growing market for student housing.

Property owners in neighborhoods surrounding USC are benefiting from relatively low vacancy rates. Preleasing remains strong in the area and so is landlords’ ability to collect rent.

“At USC, we’re pretty much better than where we were at 2019,” Kitty Wallace, an executive vice president at Colliers International Group Inc., said.
According to Wallace, occupancy is now around 90% to 95% at USC, compared to 85% to 90% near UCLA, for example.

“USC has come through this market stronger than most,” she said. Part of the reason, she said, is the university’s commitment to in-person learning this fall.

Downtown-based Ashland Pacific, which owns dozens of student housing properties near USC, has already recovered from a slight decline in rent collections that occurred during the worst of the Covid-19 pandemic, according to Chief Executive Julio Davila.
 
Last school year, Ashland Pacific’s properties were 96% leased. This coming school year, Davila said, they are 100% leased.

And Sawtelle-based Champion Real Estate Co.’s USC-adjacent properties are more than 95% preleased for the coming school year, compared with 87% to 92% occupancy last year.

Mark Ventre, a senior vice president at Stepp Commercial, called student housing “relatively recession-proof.”
 
Ventre said some operators saw a 5% decline in occupancy during the pandemic, which has since been recovered, as have rents near USC.
 
He added that in L.A., the average price of rent held fairly steady at student housing properties while it dropped among some multifamily units during the pandemic. And with eviction moratoriums and rent control, the high turnover in student housing is actually seen as a benefit since units are filled and can be rented at higher rates year after year.

“There’s a stable supply of tenants, a nice strong tenant base,” he said.
Investor demand in student housing is high nationwide and especially in areas like those around USC, according to Wallace.

These areas, she said, performed well during the pandemic “primarily because the students couldn’t live at on-campus housing and still wanted to come to the school for the community.”

Supply shortage

Champion Real Estate is one of the companies scooping up properties in the area. Over the past three months, it has spent $15.5 million on two properties in the University Park neighborhood.

Garrett Champion, a partner at the company, said there was a “large shortage of housing” in the area, making it very desirable since a housing shortage means high demand for properties near the school.

In July, Champion Real Estate acquired the former Alpha Gamma Omega fraternity house at 2831 University Ave. from University at 30th Investors for $7.5 million. The plan is to overhaul the property to create Victory House West, a fully furnished residential community for students.
 
In May, the company purchased a former fraternity house at 668 W. 28th St. in University Park from Wall Street Properties for $8 million. It will also be remodeled and rebranded as Victory House.

At both properties, Champion plans to add accessory dwelling units, a secondary living unit on a property, to increase the number of units on-site and bring in more rent.
 
Champion Real Estate started making investments near USC in 2015 and is aiming to do more.

“There’s such a supply shortage, and that is evident too with the student housing around USC. Anywhere we can invest where there’s a housing shortage, that’s a good place to invest,” Champion said.

When evaluating opportunities, location is incredibly important. And he sees his company’s model — using all-inclusive rents that include furniture and other expenses — as being especially desirable.

“We are looking for student housing opportunities. Whether that comes specifically at USC or other major universities remains to be seen. But we would love to buy more around USC if the opportunities are there,” he added.

‘Bullish on the area’

Ashland Pacific Integrated, a joint venture between Ashland Pacific and Westchester-based Integrated Capital Management, owns and manages 40 properties within a mile of USC.

Ashland CEO Davila said he is also in acquisition mode.
“We’re hoping to close on a few transactions over the next few months,” he said.
Davila is specifically looking at properties that have fewer than 20 units.

“Especially post-Covid, there’s a lot of interest from students to move away from the big projects, like the 2,200-unit apartment complexes, largely because there’s just too many common areas and too many areas where people who may not necessarily live on that property come in and out.”

Plus, smaller properties give the company an “opportunity to bring in a more sophisticated operator,” Davila said.

“We remain bullish on the area and are going to continue to make investments,” he said.

Strong outlook

The pace of dealmaking in the area did initially sputter because of Covid-19. Stepp Commercial’s Ventre said 2020 saw only about half the number of student housing sales near USC compared to 2019.

And while there haven’t been many deals completed yet this year, he said there are a lot in escrow now, including some high-dollar portfolio acquisitions.

“By the end of the year, we’re going to see that the velocity of transactions at USC is going to be at least at pre-pandemic levels,” he said.

Other student housing owners and operators see USC’s appeal.
Mark Weinstein, president of Santa Monica-based MJW Investments, owns student housing properties around the country but none near USC — yet.

He said he would be interested in the market if he could get a large number of units.

“I would look for scale. I would want 150 beds or more, and I like being closer to the school. Even though the market might be going farther out, I want my projects to be closer to school, walking distance to school,” he said.

Weinstein called the area a “great market” where it is easy to rent beds.
He added that student housing at schools like USC is seeing interest from a variety of investors now, too.
 
Ventre agreed, saying institutional capital is interested in the area, and more development is underway.

“The developments that are planned, under construction or recently delivered, and there’s been over a thousand of those units, it continues to flourish,” he said.
Teddy Leatherman, a senior director at Jones Lang LaSalle Inc., agrees that the market will remain strong.

“I think the L.A. student housing markets will continue to appreciate and will remain the top target markets for investors,” she said. “Given that the market has historically been 100% occupied, and the high barriers to entry and rising construction costs make it more difficult to develop new products, the market should be able to sustain substantial rent growth going forward.”