At this magazine’s Housing Leadership Summit last month, Toll Brothers’ CEO Doug Yearley identified two growth opportunities for his company: expanding Toll’s City Living high-rise division into markets beyond the New York metro area; and getting into “luxury” student housing.

Toll, in fact, is already involved in at least one student housing project with Dallas-based Humphreys & Partners Architects, the country’s largest apartment architect. “Four or five of the largest suppliers to the home building industry have been all over us about getting into student housing,” reveals Mark Humphreys, the architect’s CEO, who declined to provide details about Toll’s project. He tells Builder that 16 of the 50 multifamily projects with construction documents his company worked on through May of this year were for student housing.

While it’s not a groundswell yet, anecdotal evidence points to more production builders that are dipping their toes into student housing’s waters. In the summer of 2011, Active West Builders, a small single-family home builder based in Coeur D’Alene, Idaho, completed The Gee, its first student housing project, a 5,600-square-foot, three-story, 14-unit student co-op near the campus of Gonzaga University in Spokane, Wash.

This spring, Innovative Building Systems, the Pennsylvania-based modular-home manufacturer, was assembling 42 modules at its factory in Rocky Mount, Va., for a residence hall at Emory & Henry College that will be the supplier’s first passive dorm. A year ago, that plant delivered modules for a 120-room, 31,000-square-foot, $3.4 million residential hall on the campus of Ferrum College in 120 days.

And on the Camden, N.J, campus of Rutgers University, The Michaels Organization, a builder and developer of affordable housing based in upstate New York, is putting the finishing touches on a 12-story, 350-bed apartment building, with 7,000 square feet of retail space on the ground floor, that will open in August. The company’s year-old University Student Housing division has other student housing projects going on in Boise, Idaho; Mobile, Ala.; Cambridge, Mass.; Chicago; and Fayetteville, Ark., says its president Joe Coyle.

A Multifamily Offshoot

The lure of student housing for builders is pretty basic: As college enrollment has exploded—jumping 38% to 20.4 million from 1999 to 2009, according to the Institute of Education Sciences and the U.S. Census Bureau—and as kids stay in college longer to graduate, the need for on- and near-campus housing has never been greater. “Student housing is one of the few sectors with a pulse,” observes Ken Grube, education group manager for Samet Corp., a Greensboro, N.C.-based multifamily builder.

Among the industry’s 50 largest multifamily builders, Samet is one of 11 that include student housing in their construction activities. Another is Charlotte, N.C.-based Campus Crest Communities, which started building student housing in 2004 and ended last year with 33 operating properties near campuses across the country, from which it generated nearly $95 million in revenue.

Campus Crest, which owns general contracting and wholesale supply companies, focuses on building apartments near colleges’ campuses in second-tier markets, such as the University of North Carolina’s Wilmington branch. The builder is scheduled to open six more properties by this fall in Wyoming, Arkansas, Oklahoma, Alabama, Maine, and Arizona, confirms its CEO Ted Rollins. He adds that his company has another 80 markets in its development pipeline for student housing.

Campus Crest, American Campus Communities, and Educational Realty Trust, are the three real estate investment trusts building student housing. Other prominent multifamily builders active in this sector include The Preiss Company, The Dinerstein Cos.’ Sterling University Housing division, and Campus Apartments in Philadelphia.

Private equity guys are also getting into the act. Dallas-based Fountain Residential Partners, a real estate acquisition and asset management firm that formed in 2010, is currently financing the construction of several student housing projects in Texas, Oregon, and Minnesota. At Texas Christian University, Fountain is working with Centerpoint Builders, a multifamily and commercial builder, on private student housing within walking distance of the campus that will include a parking deck, a weight room, a clubhouse, and a grilling area.

Abundant Amenities

If, as Humphreys contends, “everybody is trying to get into student housing,” it’s not surprising that more production builders probing any and all areas for possible growth would at least consider diversifying in this direction.

They’d see a student housing market that’s still competitively fragmented, and whose steady growth shows little signs of abating. At last month’s RealShare Student Housing conference in Irving, Texas, speakers confidently projected double-digit increases for each of the next three year. “With university enrollment continuing to grow, the demand is there for sure, so long as it’s the right product and the right construction in the right market,” said Rob Dann, Campus Crest’s executive vice president.

Mike Harnett, this builder’s chief investment officer, observes that resort-style student housing, which has become a major selling point for a growing number of schools, isn’t all that different from what PulteGroup builds in its Del Webb communities. “It’s about high-touch, hospitality, and lifestyle,” he says.

In fact, production builders looking to penetrate the student housing arena better be ready for what one builder/developer calls the “arm’s race” to meet the ever-escalating expectations of students and their parents for amenities that range from stainless-steel appliances, Internet access, and 50-inch flatscreen TVs, to Olympic-size pools and gaudy clubhouses with fitness centers and movie theaters.

Energy efficiency and sustainability can also be marketing components of student housing. Active West’s co-op at Gonzaga, for example, was built to meet LEED Platinum requirements. Campus Crest recently entered into an agreement with Solar City to put 9,000 solar panels on its housing. And in Sacramento and Houston, Fountain’s student housing projects are transit-oriented.

Production builders that venture into student housing can also expect to encounter their share of obstacles. For one thing, they would compete against companies that not only build but also manage student housing properties, which requires skill sets most production builders don’t have and, frankly, haven’t shown much interest in acquiring to date.

Then there’s finding capital. While more bank and investor money is flowing into student housing, project financing is still difficult to raise, say builders and developers already in this sector. Fannie Mae and Freddie Mac in particular have been leery about lending to companies with no history in this sector, which suggests that builders entering this field might be wise to do so with a partner or sponsor that has some experience.

In fact, The Michaels Organization secured the Rutgers project, explains Coyle, because of its ability to locate financing for a deal that had been in limbo for several years. (Ultimately, the university took over the financing.)

Another obstacle is the availability of land. Many campuses are located in or near urban centers. “Proximity to campuses is what wins in this business,” says Harnett of Campus Crest. But finding 20 or 30 acres close by for student housing and parking can be problematic, to say nothing of the entitlement process that can go on for years.

Fountain Residential is currently building Oregon State University’s first student housing, which took seven years to entitle. “You can’t just bomb into these markets and have buildings up and running in a year,” says its cofounder Brent Little, who has been involved in student housing since 2000, and who at Fountain and previous employers has had the vantage to track some projects for up to eight years.

John Caulfield is senior editor for Builder magazine. Senior editor-design Amy Albert helped put together the slideshow presentation.

Don't miss Builder'ssister publication Multifamily Executive'srecent coverage of this issue in "10 States Where Student Housing is Surging."

Learn more about markets featured in this article: Dallas, TX, Greensboro, NC, Charlotte, NC, Philadelphia, PA.