Zaragon Place listed for sale as owner seeks to define Ann Arbor student housing project's value
Yet another sign that Ann Arbor’s student housing market is changing comes from an early leader among the many recent shifts here: Zaragon Place.
The 66-unit apartment building on East University Avenue replaced the former Anberay Apartments less than a block from the University of Michigan campus and the entrance to the Diag. It’s been 100 percent leased since it opened in 2009, and it’s the model for a second similar building on the west edge of campus that’s now under construction.
Now the building is listed for sale with a national student housing brokerage group, a move that developer Rick Perlman says reflects a heated investment market that wants a part of Ann Arbor.
“We’re testing the waters,” Perlman said of the listing. “We’re entertaining a possible recapitalization of the ownership entity.”
The listing includes a confidentiality agreement that potential investors need to sign before they can get details on the income stream and costs associated with the property.
And it also states no asking price, though it’s assessed at $9.2 million. While that figure gives it an estimated market value of $18.4 million, some real estate experts predict an open-market value of the building to be closer to $30 million.
Bringing in investors would add value for Perlman and his Chicago-based Zaragon Inc., which he believes will end up with his company maintaining a portion of the ownership and managing it.
“It’s a very good time for student housing,” Perlman said. “Especially high-end student housing. We want to see what the asset is worth.”
The listing, he said, shows how much traction the student housing market is gaining in the national investment world, which struggled over the past few years amid the recession and fading sectors - like the office and hotel markets.
However, student housing is emerging as a leading investment category - particularly among key properties on the edges of campus, where the barriers to entry remain high and the market for the “captive audience” of students who want new construction also is high.
“There’s a lot of money chasing deals,” Perlman said, in select markets like Ann Arbor. That’s also evidenced by the recent financing deal for 601 Forest, another major project next to campus at the corner of South University and South Forest.
There are two types of active properties: Prime, stabilized properties, like Zaragon Place, which attracts institutional investors and real estate investment trusts. Distressed properties -- some of which are headed back to lenders -- also offer opportunities to bargain shoppers.
According to a report from ARA Student Housing Group, based in Austin, Texas: “Student housing continues to outperform other asset classes due to strong long- term fundamentals. Based on U.S. Department of Education projections, college enrollment is expected to rise 10% between 2008 and 2017 to over 20 million students. As a result, investors continue to flock to the space in search of higher yield and strong market performance.”
Ground-up developments are slower to recover, but the activity happening now in Ann Arbor signals that rebound, too.
Perlman says the new projects aren’t saturating the Ann Arbor market yet: “We think the demand is there. … We started a trend which has done very well.”
And, he adds, the listing of Zaragon Place should end up showing that demand is deep on the investment end, too.
Yet while this project shows the best of the market, there are still concerns in Ann Arbor about how some of the student housing changes will affect the city: Most affected, most people say, will be the owners of the converted houses and small apartment buildings just outside of the core campus area.
Those properties stand to lose some value as the balance of student tenants shift inward to the high-end and new properties, leaving more supply of the older properties closer to campus.
On the development end, however, Perlman says there’s room for more well-done student projects in Ann Arbor.
In fact, he says he’s still looking for more projects in town.
“I’d love to be doing more deals in Ann Arbor,” he said. “We’re looking for more opportunities.”
Comments
Hero
Thu, May 10, 2012 : 12:48 a.m.
$455k/unit is a dream. There is a niche for the high end student, but is very limited (even at UofM). For example, most grad students do not want to spend more than 1/2 of their stipend for housing (currently, about $675/mo/bed) and these places are almost 2X that. These developers are like birds on a wire and it will be over built with all that is currently up and going up. It is the "mop up" guys that will get the deal when they buy them for $.40 on the dollar after a couple years. Either way, I can stand the storm with 80% of mine Free and Clear and the other 20% I just refi at 3% and I do all my own repairs. I am already getting ex-high end tennants coming over to me. The "new" is already wearning off.
mb20fan
Thu, Apr 21, 2011 : 10:45 a.m.
When American Campus Comunities got Willowtree it was part of a big deal that included many comunities. Only problem with it is it is a older property and never fit in with there type of properties.It would have cost way to much to bring it up to a upscale type place.When they bought Peninsular Place in Ypsi it was only maybe 2 yr`s old but it is upscale unit`s are very nice.Every bedroom has it`s own bathroom when you rent by the bedroom that work`s and sell`s itself almost.Willowtree is just not built or laid out right to rent by the bedroom where every bedroom would or could have it`s own bathroom.That said ACC put it back on the market to dump the site.Look at ACC`S website all there properties are very upscale like country club`s
MB111
Wed, Apr 20, 2011 : 12:15 a.m.
@ Mr. Whitaker, I suspect your theory that teh market is saturated has nothing to do with your NIMBY opposition to City Place/Heritage Row.
leaguebus
Mon, Apr 18, 2011 : 6:46 p.m.
These buildings are obviously for the high end students. With their parents getting $1T more bucks through tax cuts for 10 years, what do they care? Buy their student a new BMWer and a grand a month for a bed, no big deal.
Tom Whitaker
Mon, Apr 18, 2011 : 12:14 a.m.
Last October, annarbor.com posted an article about the listing of Willowtree, a 473-unit student apartment complex on Plymouth Rd., directly across the street from UM's North Campus. Despite the undertone of the article that Ann Arbor has a "hot" student housing market, six months later, Willowtree (currently owned by a national student housing REIT) is still actively listed for sale. <a href="http://www.annarbor.com/business-review/willowtree-apartments-in-ann-arbor-listed-for-sale-by-national-student-housing-investor/">http://www.annarbor.com/business-review/willowtree-apartments-in-ann-arbor-listed-for-sale-by-national-student-housing-investor/</a> The local student housing market, which I believe is saturated, should not be compared with the national REIT market, which treats properties more or less like stocks. REITs by nature are looking for newer properties with low maintenance costs and high rents, in markets with a high rate of appreciation where they can get in and get out in 5 years or less, selling at a profit. Zaragon may be newer and have high rents, but its not going to appreciate much in this saturated local market--especially if it were to sell at such an inflated price to start with.
Soothslayer
Sun, Apr 17, 2011 : 10:44 p.m.
"I want a kajillion bajillion dollars." - LOL ok Dr. Evil Riiight.. This fantasy listing has nothing to do with the recent announcements that student loan debt is about to pass 1 TRILLION dollars. The high end housing market is about to TANK. The housing market bubble burst and so too will student loans because a good portion of it is junk, never to be repaid. <a href="http://www.businessinsider.com/facts-about-student-loan-debt-2010-12" rel='nofollow'>http://www.businessinsider.com/facts-about-student-loan-debt-2010-12</a> <a href="http://www.huffingtonpost.com/2011/04/12/student-loan-debt-may-top_n_848093.html" rel='nofollow'>http://www.huffingtonpost.com/2011/04/12/student-loan-debt-may-top_n_848093.html</a>
Bob Martel
Sun, Apr 17, 2011 : 3:14 p.m.
I'm skeptical that anyone would pay $455,000 per unit for this project. Looks to me like the owner is fishing for a fool with more money than brains. Not likely going to happen anytime soon.
Urban Sombrero
Sun, Apr 17, 2011 : 2:41 p.m.
Why the need to sign a confidentiality agreement before getting info? Is this standard practice for these kind of real estate dealings or is it a sign they're hiding something hinky?
mtlaurel
Sun, Apr 17, 2011 : 12:13 p.m.
for every college student "marketed" for leasing in a high end rental..I wonder how many have had to scrap their college plans altogether...or alter their plans to "close to home" schools and live with the parents. How do the students feel after living in high end rentals for 4 yrs and then realize a decent paying job is scarce. I suppose many of the foreign students return to their home country now, I believe I've read. The"Value" being described in the article could have other interpretations.