Our last post mentioned “Real Estate Groundhog Day” and potential repetitive cycle often experienced in the real estate industry. We mentioned market cycles, buyer and seller behavior, agent routines, and seasonal trends. Understanding the trends in asset classes help advisors and investors focus on the right due diligence elements.
February 10, 2025
By Al DiNicola, AIF®
DST 1031 Specialist
NAMCOA® – Naples Asset Management Company®, LLC
Securities offered through MSC-BD, LLC, Member of FINRA/SIPC
You can access the last article here. Alternative Investments and CRE 2025 Ground Hog Day – DST Education and Market News
The overall concerns may last for more than 2025 and include:
- the wall of debt maturities in commercial loans
- Affordability of real estate
- Migration Patterns
- Supply and Demand Dynamics Across High-Conviction Sectors
We will review self-storage, student housing, multifamily, and senior housing in this writing.
Self-Storage
The pandemic created a list of dynamics that created an enormous impedance prompting people to shift where they wanted to live and ultimately work. The shift in housing demand created an increased demand for storage. Rents for storage for both individual units and facilities increased drastically from 2020 to 2022. The trend did slow down and reversed itself. Some analysist pointed to the interest rates spiking. Storage rents declined significantly in certain areas. This resulted in underperformance in the sector. There were pandemic era gains but much of the gain has now been given back. The good news is that the self-storage asset class may benefit from the stable demographic demand going forward. Here are some of those demographics.
• There are life events that will prompt relocating or downsizing your living accommodations. These include job change, divorce, marriage (or moving in together and yes even death of one of the partners or spouses.
• The millennials are reaching peak home ownership time period (if they can afford it) and there are still many baby boomers entering retirement.
• New supply of facilities is slowly declining after a large increase. This increase started before the pandemic from 2018 to 2020. Immediately after the pandemic the migrations prompted additional supply to come on the market that now is slowly being absorbed.
• If (and when) interest rates and inflation come down this may prompt an increase in housing transactions. There is the forecast for an increase household formation by millennials which may see additional demand for self-storage.
• The potential for rent growth in 2025 may be realized by a demographic shift in housing needs. Some experts state we are 4 million housing units short. An additional factor will be the supply of self-storage stabilizing.
Student Housing
The big question may be is there still enough college age population. There was an old saying about making too many mouse traps if you did not count the mice. Most residential asset classes will have challenges including demographic (millennials getting older), overall interest and cost for higher educations. However, top tier colleges and universities still have an appeal. Schools in Power 5 conferences and others with robust athletic programs, facilities, and educational reputations have continued to see stable growth.
• Year over year certain schools have stable or application increases. This is despite the overall enrollment shrinking.
• according to Axiometrics Approximately 31,000 students per year through 2027 expected to enroll at top-tier universities.
- According the Yardi “New supply of student housing has been dropping, with 35,703 off-campus, dedicated student housing beds completed in 2024, down from 44,746 beds delivered in 2023. Over the next several years, Yardi Matrix projects supply will continue to fall to 32,100 beds in 2025 and 33,995 beds in 2026. Recent updates brought down new bed counts in 2024 and 2025 as completion dates were updated”.
• International students still consider the U.S. schools to be the number one destination. • What does not get a lot of attention is the number of school closings. In 2024 it is estimated that one school a week has closed. Granted many of these schools may be offering degrees that have limited appeal or potential students do not find the overall education experience as positive. In the past ten years it is estimated that 726 degree granting post-secondary institutions have closed. Many of these closing was due to declining enrollment resulting in financial struggles.
Multifamily
The drivers and outlook for many of the residential offerings may be the lack of new construction starts. After COVID there was an aggressive construction effort to build many multifamily units. By mid-2025 much of that supply should be absorbed. The multifamily sectors as well as the build for rents and manufacture homes will benefit from the supply pipeline slowing down,
• Traditional homeownership is challenging today with the high interest rates as ewll as the high housing process. For many renting will be the option either by necessity or desire.
• COVID prompted many to seek working from home. There appears to be a move from the downtown markets that provide ample room to work from home and potentially afford space to start a family (in the case of millennials).
• Analyst will look at the construction pipeline, meaning how many units are under construction and be delivered in the next six quarters. Meaning units in the pipeline at the start of 2024 will be delivered mid-2025. There will be a sharp decline in deliveries. This is good news for investors.
• Rent growth has been flat over the past 18 months. This is caused in part by the the delivery of new units coming on the market. In a proforma typical developers will estimate expenses growing by 3% and rents by 5%. This has not happened. Rents have been flat and expenses even staying the same (some have increases) put a strain on the NOI. Limited construction starts.
• There are multiple generations who prefer “just a little more space”. The build-to-rent properties are poised to benefit.
Senior Housing
Senior housing demand is strengthened by the aging U.S. population and a considerable shortage in senior housing communities.
• As baby boomers reach their mid-70s, an increasing need for housing options that better suit them will emerge.
- Construction costs continue to rise and building code requirements create challenges. The big question will be, can enough supply be delivered. Based on the need and the tremendous growth after the pandemic rent growth should do well. There are estimates there will be a need for 600,000 units by 2030.
• The baby boomer generations (by most accounts) hold more than 50 percent of the nation’s wealth. There is a focus on developing high-quality senior housing options that may attract baby boomers. There would be a need to have with high-end amenities and a sense of community to attract baby boomers as they age.
• The challenge may be with the lack of construction starts. There is a severe shortage of senior housing units and when supply is limited the demand for units will create strong fundamentals going forward. There is a comparison to limited supply experienced after The Great Financial Crisis reoccurring.
Effects on DST Offerings
All of the same analysis of asset classes with traditional CRE apply to Delaware Statutory Trust (DST). By structure individual investors secure DST investments with non-recourse debt (if the DST has leverage). Recently with the increase in interest rates DST has been structured with less leverage or all cash offerings. This may create a challenge for investors utilizing a 1031 with require debt replacement to fully comply with the exchange requirements.
We will continue in Part Two with office, medical office (MOB), industrial, and Life Science.
We want to thank many of the sponsors who have provided 2024 and 2025 analysis including Inland-Investments, Capital Square, Cantor Fitzgerald, Brookfield, Starwood and others.
NAMCOA® is a SEC registered investment advisory firm that provides comprehensive portfolio management, financial planning, and fiduciary decision-making services on behalf of retirement plan sponsors. Our Difference is summarized by our fiduciary approach which enables us to better meet portfolio and retirement plan objectives, resulting in stronger risk adjusted returns for investors and peace of mind for Clients. We also focus on alternative real estate investment. Many real estate investors are seeking tax deferred solutions utilizing §1031 exchanges or Opportunity Zones.
DSTs are not for all investors. The acquisition of a DST is for accredited investors only. Contact your investment adviser for additional details on how a DST may be a solution to your 1031 Exchange and suited for your investment future. For more information on how to properly set up an IRC 1031Tax Deferred Exchange or if you are an accredited investor and would like additional information on a DST contact Al DiNicola at 239-691-8098 or email adinicola@namcoa.com.
This is not an offer to purchase or solicitation to purchase any security, as such be made only through an offering memorandum or prospectus. Investing in securities, real estate, or any investment, whether public or private, involves risk, including but not limited to the potential of losing some or all of your investment dollars when you invest in securities. You should review any planned financial transactions that may have tax or legal implications with your personal tax or legal advisor. NAMCOA, LLC is a Registered Investment Advisor, regulated by SEC (Securities and Exchange Commission). Our corporate office is located at 999 Vanderbilt Beach Road, Suite 200, Naples Florida 34108. Securities Offered through MSC-BD, LLC, Member of FINRA/SIPC. 8215 SW Tualatin- Sherwood Rd, Suite 200, Tualatin, OR 97062. MSC-BD, LLC and NAMCOA are independently owned and are not affiliated.
Thank you.
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