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Friday, December 03, 2021

The rise of luxury student housing

We can't afford the next generation of student housing, but that won't stop it from being built coast to coast.

“Oliv Madison,” a new student housing project from Core Spaces, is slated to offer 10% of its beds at a discounted rate.
“Oliv Madison,” a new student housing project from Core Spaces, is slated to offer 10% of its beds at a discounted rate.

When a developer proposed “Hub II”, a seven-story student apartment building with a rooftop swimming pool to be built on Langdon Street, then-student and District 8 Alder Sally Rohrer remembered being “sketched out.”

“It felt so strange when something's happening that's going to affect students, but it's not being advertised to them. It wasn’t being widely talked about on campus,” Rohrer recalled of the 2019 project proposal. “There was a lot of sketchy business with the developers getting students to testify in favor of the development. ”

The 124-unit building — slated to be nicknamed “The Langdon” — was designed to occupy the empty lot at 126 Langdon St. and serve as Core Spaces LLC’s third student apartment building in Madison alongside the James and the Hub. Its location would situate the apartments within a historic downtown neighborhood between the University of Wisconsin-Madison fraternity and sorority houses.

Sure enough, when Greek life heard about the project, many were less than pleased. The rest of us looked on with surprise and confusion. The idea of a “Hub II” seemed too absurd, too dystopic, to be true.

Students and Langdon residents raised environmental concerns and questioned the project’s lack of affordable housing, while the UW Panhellenic Association drafted a letter outlining recommendations on how to improve the project. A board member of the neighboring sorority Alpha Chi Omega raised privacy issues, as the Hub II’s upper stories would have full view into the sorority house’s windows. 

“We found out, once you started telling people what was happening and talking to Greek life, that the majority of people didn't want this to happen. It was one of those experiences where you realize that stuff like this can fly under the radar,” Roher said.

In the end, the question of cost wasn’t what put the project on hold. The Madison Plan Commission ultimately voted to reject the Hub II construction proposal, pointing to safety concerns and an “unrefined aesthetic.”

“Langdon is a very special street in this city and I think even though it is not a local [historic] district, people view it as a local district,” Commissioner Bradley Cantrell said at the time. “I don’t think this project is there yet … I’m struggling with the rhythm and the mass of this building that we’re looking at.”

But the idea of Hub II didn’t just go away. It resurfaced not two years later as “Oliv Madison,” a new student housing project from Core Spaces that is slated to offer 10% of its beds at a discounted rate. A discounted bed is expected to be rented at the average price of $740.

As students combat the idea of another luxury apartment building on campus, a question arises: Where did these overpriced buildings come from?


A national issue

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Core Spaces is surely making its mark on Madison’s downtown, but UW-Madison students aren’t its only target. 

Core Spaces is one of the nation's leading developers, owners and operators of luxury properties in educational markets. As a vertically integrated company, Core Spaces purchases land, develops plans, builds and then rents its spaces to students directly. By managing its own supply chain, which is also owned by the company, Core Spaces cuts out the middleman.  

It currently owns and/or manages 37 properties nationwide totaling over 16,000 units and beds and has a pipeline (properties in development or acquisition processes) of over 33,000 units and beds.

On Nov. 4, Core Spaces announced a partnership with Ares Management Corporation to acquire a portfolio of five apartment buildings valued together at over $400 million. The news serves as the “initial transaction” for the partnership, as the two groups will seek to grow their respective student housing portfolios centering on college and university markets across the country.

“We’re excited to partner with Core Spaces and add these five newly constructed properties to Ares’ strong and growing U.S. multifamily portfolio, which today includes approximately 25,000 units across over 85 properties,” said David Roth, the head of U.S. real estate equity at Ares Real Estate Group. “This transaction highlights Ares’ ability to transact across the risk/return spectrum.”

Meaning, student housing is a rising market, and more and more investors are becoming interested in getting their own slice of the luxury dorm pie. 

The opportunity is attracting international attention too — Core Spaces formed a partnership with two global institutional investors in February with the intention of acquiring over $1 billion of assets and operating a “diversified portfolio of student-oriented residential real estate in leading university markets across the United States.”

"Despite the global pandemic, student housing operating fundamentals have remained strong, and we continue to see a bright future for the sector,” said Founder and CEO of Core Spaces Marc Lifshin.

Their projects extend from coast to coast, with multiple cities finding themselves home to one or more Core Spaces properties. In September, the LLC secured construction financing for the development of its second property serving students at the University of Southern California — Hub on Campus II. Some of its other locations include Hub Lexington (catering to the University of Kentucky), Oliv Tucson (University of Arizona) and the Hub Tuscaloosa (University of Alabama).

We can't afford the next generation of student housing, but that won't stop it from being built coast to coast. 

While student groups in Madison have been quick to raise the alarm on the LLC’s new developments, other cities have provided incentives to the company. The State College's Borough Council, which is a town dominated by Pennsylvania State University, passed a resolution in October approving a performance bond for Core Spaces. The Daily Collegian reported that the project will utilize the borough’s Green Certified Incentive, which enables LEED-certified or equivalent buildings the ability to reduce required minimum parking at the development site.

A bond amount of $191,000 was passed unanimously by the council to benefit the construction of Hub State College.


The Berkeley problem

To understand what exactly is going down in Madison’s student housing market, we can look at another city that’s had to face a rapidly changing skyline: Berkeley, California. 

The Berkeley City Council passed a plan in 2012 allowing for seven height exemptions for its downtown area — an area that was otherwise capped at 75 feet. In 2014, a glimmer of hope emerged; a ballot measure was introduced that would require developments over 60 feet tall to include affordable-housing options, project labor agreements and improvements to public infrastructure. 

The measure was rejected. Why scare away developers with unnecessary restrictions? After all, Berkey was facing an issue that Madison is no stranger to. Due to decades of underdevelopment, the city was left with a sizable housing shortage made worse by an ever-growing student population. 

Core Spaces submitted an application on Sept. 1 for the final spot among Berkeley’s allowed height exemptions. The company proposed a 283-unit development called Hub on Campus Berkeley, and if it’s approved, the Hub would be the tallest building allowed according to the city’s 2012 plan. 

The company will likely face an uphill climb; previous developments faced sharp opposition from residents regarding the possible impact on the city’s appearance. The first project to seek approval under the plan was debated at 37 city meetings over the course of three years and ultimately fell apart.

Core Spaces believes that pushback will lessen as time goes by. Since the first project at 2211 Harold Way fell through, another proposal, a 12-story mixed-use project, was met with encouragement by the Berkeley Zoning Adjustment Board.

“That was approved without appeal,” Jonathan Kubow, senior vice president of development at Core Spaces, told the San Francisco Business Times. “I think that’s just kind of an indicator — perhaps earlier we wouldn’t have expected any tall building in the downtown [area] to proceed without appeal.”


The local dilemma

The sweep of luxury student housing being built and expanded across the country is like a rising tide in slow motion; you can see it coming, and you can fight it and warn your local elected leaders, but in the end, the wave will come crashing down. 

It’s easy to blame students for the situation that downtown Madison finds itself in. Beloved businesses and places of community-gathering will be swept under the rug or relocated to match the wills of out-of-state students willing to spend big bucks on their first apartment. These same students will try to sublet their shared bedroom for the discounted price of “only $1,000 dollars a month!” while they spend a semester abroad. But blaming students for the modern concrete boxes taking over Madison’s skyline won’t solve the city’s housing shortage. 

Developers wouldn’t have come knocking if there wasn’t an already-prevalent supply-demand problem. 

The city of Madison and the university’s housing division will continue to struggle to meet the demands of its growing population as long as growth is left to international investors and faceless companies. As evidenced, these growing pains come with a difficult decision. We can lean on these companies and investors to “solve” the problem for us, pricing out an entire population of residents and low-income students along the way. Or, we can guard these plots of land and storefronts in the name of history while allowing swaths of students to struggle to find any housing at all. 

It’s a difficult choice, and it’s not one that will be made easy. Housing must be built.

Still, Oliv Madison’s “equitable” beds are not the answer to meeting affordable housing needs. Indeed, any developers that skirt conversations of affordable housing should be treated with suspicion. “We’ve been told not to use affordability as a word,” stated Mark Goehausen, senior development manager at Core Spaces. But Core Spaces may have gotten closer to the solution than anyone else yet. 

Requiring that developers dedicate 10%, 20% and even 30% of units to be affordable housing should be the norm. Putting pressure on each individual company that eyes State Street will never work in the long run; our local government should serve as a unified front and be clear in its requirements for building developments aimed at “young professionals.” The Berkeley City Council passed by an opportunity to let developers in the door while shaping its affordable housing options and assisting students and residents in the process, but we haven’t missed ours.

The Plan Commission and Common Council must set standards on how luxury student apartments are built and marketed, and until then, the burden is on residents and students to defend our neighborhoods.

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