Three downtown colleges have switched from landlord to tenant after completing the biggest student housing deal ever in Chicago.
A nonprofit formed by the three schools—Columbia College, DePaul University and Roosevelt University—just completed the $201 million sale of University Center, a 1,729-bed building in the South Loop where their students live, according to Cook County property records. The nonprofit sold the 18-story building at 525 S. State St. to a joint venture led by Blue Vista Capital Management, a Chicago-based real estate investment firm that specializes in student housing.
The deal will free up money for the schools to spend on other purposes, though they now will pay rent to Blue Vista. Under the deal, the colleges signed agreements to lease a “vast majority” of the beds in the property for 10 years, said Blue Vista co-founder and CEO Peter Stelian, declining to elaborate. Another local school, Robert Morris University Illinois, has signed a shorter-term master lease for a batch of beds in the building, too.
“It’s a well-located asset in the city of Chicago,” Stelian said. “It’s directly surrounded by multiple schools.”
It’s also the biggest—and priciest—student residence to change hands in Chicago, and at a time when investors around the country are paying top dollar for student housing. Once dominated by small local developers and landlords, the sector has matured over the past decade or so, attracting big institutional and even overseas investors. Blue Vista acquired University Center in a joint venture with Paris-based Axa Investment Managers.
Yet it’s still a risky sector because student housing is more expensive—and complicated—to manage than conventional rental housing. Adding to the risk, turnover is high because tenants move out after every academic year and many don’t come back. Lease renewal rates are higher for traditional apartments.
Moreover, some student housing investors are leery of Chicago because the city already has such a big supply of apartments. By offering a housing alternative for college students, apartments can be a competitive threat to student housing landlords.
But Blue Vista has minimized its risk at University Center by entering into master leases with Columbia, DePaul and Roosevelt that will guarantee a revenue stream and include regular rent increases, Stelian said.
“That was a critical part of the transaction,” he said.
University Center, which opened in 2004, cost about $150 million to build. The nonprofit, which developed the building, carried about $127 million in debt on the property, implying that the three schools received about $75 million in pre-tax proceeds from the sale to Blue Vista.
Blue Vista and Axa plan a multimillion-dollar renovation of the dorm, spending most of the money fixing up the apartment interiors, Stelian said. Blue Vista, which holds a 5 percent stake in the joint venture, and Axa, which owns 95 percent, financed the acquisition with a $102.6 million mortgage from Wells Fargo Bank, county records show.
At $201 million, the deal is the second-biggest single-property student housing sale ever in the United States, according to Real Capital Analytics , a New York-based research firm. Blue Vista set the national price record in 2012, when it paid $204 million for University Gateway near the University of Southern California in Los Angeles.
Blue Vista owns more than 13,000 student housing beds around the country. A management affiliate, Peak Campus, operates about 53,000 beds.
Blue Vista also owns Tailor Lofts, a 477-bed student housing complex in the West Loop that it developed several years ago. That property is for sale.