Alan Perlis is promising to show off what he calls the most popular room in the 25-storey student residence tower his real estate development company recently opened near the University of Toronto.
He has already given a tour of a spacious cafeteria, a penthouse lounge with panoramic views of the city, several video game rooms, a table-tennis room, even an arts and crafts space. What could be left?
He swipes his security card and opens the door to a small room containing bins of colourful toy building bricks, similar to Lego. One wall is covered with the green plastic base material, allowing students to spell out words on the wall in bricks.
It's called a "maker space," Mr. Perlis explains, and Knightstone Capital Management Inc. also built a similar room in another residence building it constructed on Centennial College's campus on the east side of Toronto in Scarborough.
"You show up some mornings and there are some funny things written on the walls," he adds.
Knightstone's CampusOne building at 255 College Street in Toronto, which houses 890 students, is a far cry from the 1960s-era buildings that have been the backbone of student housing on many Canadian campuses for decades.
Growing global competition to attract students and demanding tastes among the current generation have created an opening for private-sector developers to move into student-residence construction as builders and investors look for less-competitive, untapped niches in the highly competitive real estate market. The shift capitalizes on the increasing willingness of students – or their boomer parents – to pay healthy rents for higher-end residences with every sort of amenity.
A standard room in the CampusOne building in downtown Toronto costs about $1,700 a month, not including the meal plan. But gone are the painted cinder-block walls and lineups for showers down the hall. Instead, today's students get condominium-quality units, high-speed WiFi, fitness and games rooms and a host of programming from yoga classes to animal-petting events.
"If you asked people 10 years ago why they chose their university, where they lived was eighth or ninth or tenth on the list," Mr.
Perlis says. "Over the last 10 years, with the change in students and the needs and wants of this generation, where you live has moved up to first or second or third, depending on who they are."
With many universities unable to meet the overwhelming demand for residence space, the sector is seen as a safe bet for investors, offering the potential for stable long-term returns. Institutional investors also find the pricing attractive because there is less attention on the asset class than in many other real estate categories, so less competition as a result.
The Canada Pension Plan Investment Board has invested almost $4-billion in student housing since 2015. It purchased Liberty Living, a Britain-based student-housing operator with 24,636 spaces under management, and owns 45 per cent of U.S.-based joint-venture company Scion Student Communities LP, which has 46,555 university-residence beds under management.
Peter Ballon, CPPIB's global head of real estate investments, said the fund is optimistic about the student housing sector because enrolment is climbing at target universities, and they have a limited ability to build their own new residence space due to land constraints and challenges getting approvals.
"The U.K. and U.S. student-housing sectors have been evolving over the past 10 years from an entrepreneurial owner-operator business into an institutionalized investment class," he said.
High-end student residences built with private-sector money have become a key competitive attraction at many U.S. colleges, where amenities have reached lofty proportions in some cases. Some U.S. campuses in warmer climates not only boast resort-quality swimming pools, but even have theme-park-style attractions like "lazy river" rafting rides.
While Canada has not seen nearly as much private-sector involvement in residence construction, the public-private partnership trend is catching on quickly. In Ontario in particular, universities and colleges are struggling to meet demand for on-campus housing as the population swells and schools say there is no government funding available for residence construction.
Private-sector partnerships allow universities to add residence space without using up their own borrowing capacity, which can be used for other priorities such as classrooms or research facilities, said Roger Couldrey, vice-president of administration at McMaster University in Hamilton.
"Part of the strategy here is to preserve debt capacity for other academic purposes, and utilize what is available right now, which is third-party funding for these types of [residence] projects," he said. "It's available quite significantly – there's a lot of private-sector money."
McMaster is planning two new residence buildings to be constructed with private-sector partners: one is a partnership with Knightstone to build an undergraduate residence with as many as 1,400 beds in two phases, and the second is a 500-bed graduate-student residence located off-campus in downtown Hamilton. A third new 500-bed residence is under construction on campus, funded entirely by the university.
The new beds will greatly expand McMaster's current 3,700 residence capacity, allowing the university to eventually offer a guarantee of residence space to any first-year students who want it. The university has about 5,100 first-year students arriving each year.
First-year residence guarantees are offered by many other universities with larger residence capacity, and have become a key competitive advantage to attract students.
"We're closing a gap currently with our peers, that's what is really driving this," Mr. Couldrey said.
The University of Toronto, which offers a first-year residence guarantee, is also working on developing a new residence at the corner of Spadina Avenue and Sussex Avenue in partnership with the Daniels Corporation, a private development firm.
The university was not a partner in building the nearby Knightstone building on College, which opened in August. The university does not own or operate the residence, but has a contract to provide the cafeteria food services in the building and owns some of the land beneath it. Knightstone calls it an "affiliated" U of T residence.
U of T vice-president of operations Scott Mabury said the Knightstone project was built in a period when the university had sworn off funding new residence construction after racking up substantial debt while building several new residences over a decade ago.
Since then, however, the university has reconsidered its development plan and has decided to proceed with a joint-venture partnership in the new Sussex Avenue project, which will have more than 500 beds.
With a growing focus on recruiting students internationally, new residence space is urgently needed, Mr. Mabury said.
"We need a couple of thousand beds by 2020 to largely stay in place because those international students are more likely to use the [first-year] residence guarantee," he said. "We are competing for the best talent, and that talent has choices."
Some developers are proceeding without a partnership deal in place. The demand for student housing in Toronto and other Ontario markets has attracted builders who have no affiliation with a university. Waterloo in particular has seen a such a glut of private-sector construction that the market is saturated with student rental options, says Tyler Ross, president of Scholar Properties Ltd.
Scholar has been acquiring residential properties in Kitchener-Waterloo, Hamilton and London to tap into the student-housing market, but is working independently and not building with a university as a partner.
The company is now planning to launch preconstruction sales this spring for a new 43-unit condominium building in downtown Hamilton, around the corner from McMaster's downtown campus, in partnership with Effort Trust. The units will be sold to investors and Scholar is offering a guarantee that it will find student tenants to lease them.
Mr. Ross said it is safe for a developer to build with a university as a partner, because the institution can funnel students to the residence. But institutions also move slowly and are bureaucratic, and he is confident there is ample demand to fill his Hamilton project.
He believes the private market for student housing is still in its infancy in Canada, and the U.S. experience offers a sign of how much more potential exists.
"If you look across the border to our American counterparts, every major school in any major state has huge amounts of off-campus options, huge amounts of public-private partnerships," he said.
Given a choice in the matter, many universities and colleges say they would rather partner with a builder than see students stream into adjacent private residences where the university has no involvement in student life.
Centennial College built its new 740-bed residence on its campus in Scarborough in partnership with Knightstone, which paid for the construction and will collect residence fees for years to cover the investment. In the long term, the building will be owned by Centennial however, under a complex public-private partnership agreement.
Shannon Brooks, Centennial's associate vice-president of corporate services, said the partnership model helps the college raise funds for construction, but also allows the college to still retain control and closely monitor issues, including situations where students need counselling.
"The more involved we can be to support our students, the better the success is of the operations as a whole," she said. "You get these residences that are completely not affiliated, and you lose all of that, which is pretty significant."
Mr. Perlis of Knightstone says there are different challenges when operating a residence for university students compared with a condo or apartment building aimed at adults. It makes experience in the sector essential, he said.
"In today's day and age when your target clientele is 18, 19, 20 years old in the social-media world, it's an interesting, challenging environment," he said.
His pro tip for managing today's students? Get the WiFi right.
"If you didn't feed them and the power went off, they could live with that," he says. "If you take away their WiFi, it's impossible."