Pandemic’s fallout extends  to student housing market

Kim Bretheim

Disruption from the COVID-19 pandemic and its economic fallout has had an uneven impact on the area’s college housing market.   

On the downside, the public health crisis has put the brakes on two major housing development projects, one on campus at UMD, the other adjacent to Lake Superior College. This is especially challenging coming at a time when existing housing stock is aging and in need of remodeling or replacing. Officials at both schools expect these developments will eventually move forward.

On the upside, the off-campus student rental market has mostly weathered the pandemic storm, according to sources in the property management industry. They point to three factors that have helped:

• An overall rental market that was already strong – pre-pandemic – with a low vacancy rate (averaging 1 to 3 percent, according to industry sources), which is absorbing a downturn

• An unexpected influx of out-of-towners – many from the Twin Cities – who are bringing their jobs with them and working remotely; and

• Available rental assistance from federal resources.

On-campus housing on hold

At UMD, an ambitious, $70 million housing and dining project was postponed last spring, when construction was slated to start. Plans call for a 10-story residence hall and a new dining facility for on-campus students. When built, the new dorm will be the tallest building on campus. According to reports, the project is funded by fees and revenues generated by UMD’s housing services.

About one third of UMD’s nearly 10,000 students live on campus, and demand has generally been high for students wanting to live on campus, especially first-year students who want to “have that collegiate experience,” said Jeremy Leiferman, director of housing and residence life at UMD. So, the plan for the new dorm was an opportunity to both “accommodate more new students in residence halls” and to “take some existing buildings offline,” that is, to replace aging buildings. According to Leiferman, some dorms were built as far back as the 1950s, including Burntside and Vermilion Halls. “These are likely not prime to be rehabbed for housing but is there a different university use for those buildings or are they candidates for demolition? That’s all still being considered.”

For now, the new dorm and dining project remains on hold  “at least until we have a better sense of what our future, post-COVID, looks like,” said Leiferman. 

For the fall semester that ended in December, Leiferman said on-campus housing had about a 70 percent occupancy rate because of the pandemic, with a subsequent small drop off later in the fall and some cancelled housing contracts as students learned whether their courses would be virtual or in-person. In the fall, UMD students enrolled in a mixture of in-person classes, virtual courses, and, in some cases, a hybrid of both. UMD plans that same mix of courses for the spring semester, Leiferman said.

Students living on campus this fall found a number of added safety policies in place, too, such as social distancing, mask wearing, guest restrictions, and no large gatherings or housing-sponsored activities such as game nights.

At Lake Superior College, on-campus housing is not available, so students live in apartments or houses throughout the area, said Daniel Fanning, vice president of institutional advancement and external relations. Accordingly, a privately owned and operated housing project called LSC Flats, which was planned to be built on city-owned, tax-forfeited property adjacent to the LSC campus, was eagerly anticipated by college officials, Fanning said.  

But, like the UMD dorm project, LSC’s plan was also put on hold last spring. Construction was delayed by one year, Fanning explained in an email. Groundbreaking is set for this spring. 

“We’re very excited about this. The No. 1 question we get asked (from prospective students) is about housing options.”

LSC Flats LLC, an offshoot of Titanium Partners LLC, invested nearly $18 million into the building, which will provide 87 apartments with 200 beds to LSC students, according to a Duluth News Tribune report.

Across the bridge at UWS, 522 of the university’s more than 2,528 students (a little over 20 percent) were living on-campus this past fall semester.

Ryan Kreuser, director of housing, said the school opened this fall with a 70 percent occupancy rate for its residence halls because of the pandemic, similar to UMD. And, like UMD, COVID-19-related policies were also in place for on-campus students, including rules such as limits on social interaction and restrictions on visitors in UWS’ six residence halls.

After the Thanksgiving break and through to the end of the fall semester in December, as classes at UWS went fully online, less than half of its residential students remained on campus full time. It is anticipated that those who went home for the remainder of the semester will return to the residence halls for spring semester, which started in January, he said.

For classes this past fall, UWS offered roughly half of its classes in person with smaller class sizes to allow for social distancing and to mitigate risk. For spring, plans are for classes to be about 45 percent online and 55 percent in person, said Jordan Milan, a university spokesperson.

UWS currently doesn’t have any new housing construction plans, but several years ago renovation was done to Ross and Hawkes Residence Halls, according to architect Kim Bretheim, who is the housing studio leader for architectural firm LHB Inc., which worked on the projects. He said general rehabs were done to the facilities, which had been constructed in 1967, including items such as mechanical updates, building code updates, fixing inefficient lighting and insulation, “and also incorporating more living amenities such as community spaces and kitchens, gathering spaces, and bathroom and lounge updates,” trying to create an environment that meshed “living and learning together.”

Bretheim gave a nod to the aging housing stock issue that many universities are contending with. “There is a desire now for a different concept of student living than what was created in the boom years of the 1960s and ‘70s (when many existing dorms were built). The current stock needs updating or replacing; the technology is old, a lot of work is needed in repairing and updating, it’s just due.” In addition to UWS, Bretheim said his company has done similar work for the University of Minnesota-Morris, Carleton College in Northfield, and several University of Wisconsin branches.

Rounding out a look at campus housing in the area is the College of St. Scholastica. According to the school’s website, CSS houses about half of its nearly 2,500 students on campus. First-year students live in Somers Hall dorm, and upper-class students live either in four on-campus apartment buildings or off-campus.

Off-campus rental market weathers the storm

And what about off campus? The area’s off-campus student rental market has, so far, successfully navigated the pandemic’s disruption, say several property managers, mostly because the overall rental market’s low-vacancy rate was at or near capacity before the pandemic hit.

“The big thing to note about student housing and really rental housing generally, is that it is a really good, strong market because we already had – pre-pandemic – a 1 to 2 percent vacancy rate and it isn’t really much different now,” said Greg Follmer, owner of Follmer Commercial Real Estate. “And so even if there is a loss, this market can absorb it. It’s still a pretty strong market for landlords.”

Even statewide, landlords reported a modest decline in the amount of rent they collected in October from Class C properties. Rent collection through Oct. 6 was 85 percent, which is down from 94 percent in October of 2019, according to data from the Minnesota Multi-Housing Association, and which was reported in a recent Minneapolis/St. Paul Business Journal article. Further, overall rent collection in Minnesota continues to outpace the rest of the country, with Class A and Class B collection coming in at 96 percent and 93 percent, respectively. Nationally, rent collection was 79.4 percent in October.

That said, there was a “definite dip” in new lessees last spring among the college crowd in the Duluth area because students weren’t ready to commit for the school year until their college or university determined whether classes would be virtual or in person, recalled Tyler Bystedt, property manager for ShipRock Management.

“Right around May, when schools started to commit to in-person sessions, that’s when we were able to lease up” for the school year. Bystedt explained that most off-campus landlords lease to students on a June through May basis. Of course, by fall, most colleges ended up offering a mix of in-person, online and hybrid courses.

Because of that period of uncertainty last spring, and that so-called “dip,” Bystedt said, ShipRock did have to make some “price concessions” on some properties that missed the usual lease cycle.

To fill some of those vacancies, Bystedt said his company also sought out other, non-college customers such as families and working adults. In fact, ShipRock’s rental portfolio is fairly diverse. About 30 to 35 percent of its tenants are college students, Bystedt said. ShipRock manages roughly 1,400 rental units, mostly in the Duluth and Superior area, with some properties also on the Iron Range. The rentals include duplexes, triplexes, multi-unit buildings and single-family homes. 

Fortunately, Bystedt said, by fall, even though schools shifted from in-person to virtual or hybrid learning, “We didn’t have many lease breakers.” Notably, having Wi-Fi has now become an essential amenity to offer prospective tenants.

Another potential factor that may have helped the rental market this past year has been an unanticipated influx of new renters from out of town – mostly the Twin Cities, said Alex Rogers, a principal at East West Property Management. These are large- and small-company professionals who have been working from home during the pandemic and have realized that they can do their jobs remotely from almost anywhere.

“We’re seeing a strong, abnormal amount of people moving from the Cities and they seem to want to rent first before buying,” Rogers said.

Though it’s too soon to quantify this migration as a trend, both Bystedt of ShipRock and commercial real estate broker Follmer have noticed. With the ability to work remotely, Follmer said, “People are getting out of the big markets and moving to smaller markets like Duluth.”

Finally, beyond the already low-vacancy rate and the influx of out-of-towners, federal funding for housing relief through the Coronavirus Aid, Relief and Economic Security (CARES) Act has also supported the market, Bystedt pointed out. 

“These funds in some cases have helped subsidize rents, which has been a benefit to some of our residents.” 

Looking to the future

So, what does 2021 look like? With the promise of a vaccine, UMD’s Leiferman anticipates increased enrollment and a strong demand for on-campus housing with students wanting to have that “campus experience,” educationally and socially.

And, Lieferman expects he and his staff will take some lessons from the pandemic precautions that have been in place, deciding, for example, that they still may sponsor some activities virtually because some students prefer that approach.

In addition, in past years, UMD had students all move in to campus dorms and apartments in one day – one giant move in. But, this past fall, because of COVID-19, that activity was spread out over several days to maintain social distancing. Turns out, that was a more efficient approach, Leiferman said. 

“We spread our move-in out over multiple days and we’ve seen that it serves students better.”

At UWS, “Pent up demand for the on-campus experience is reflected in our fall 2021 recruitment numbers,” said Jeremy Nere, executive director of admissions. He said admissions applications are up 150 percent. “It is a little early to gauge housing at this point, but there is lots of interest generally.”

A better 2021 is anticipated off campus, too. Follmer  said he is seeing several large, market-rate, residential developments such as apartment buildings in the works, “not necessarily for students, but geared more for working adults, working professionals. There will be lots of units coming onto the market.” Some are redevelopment projects of existing buildings and some are new construction.

The off-campus property managers are also anticipating a better 2021. As Bystedt said, “At the current moment, we are leasing for 2021, we are not behind. We are on track from years past, so it seems like most people are feeling confident that classes will be in person enough that they are securing housing.”