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DALLAS-One main disagreement at the second annual RealShare Student Housing Conference focused on which was more important when it came to valuation and performance: cap rate or cash-on-cash. But panelists and speakers participating at the April 15 event agreed the sector is more or less recession-proof, so long as the owners and operators know what the heck they're doing.

"This is a great market for entrepreneurs," commented Michael Zaransky, co-CEO with Prime Property Investors Ltd. "It's great for experienced operators. But not for newer, inexperienced operators." The latter, he commented, are likely to feel a great deal of pain.

Participants speaking to an audience of 500-plus attendees at the Four Seasons Resort and Club also agreed the current downturn is almost Darwinian in nature, forcing out those in the sector who are inexperienced and who built or bought simply because it was the thing to do. Harris Street Real Estate Capital assistant vice president Brian Thompson, for example, pointed out that merchant builders are finding themselves in the position of being long-term holders rather than flippers, because of the market and lack of liquidity available to buyers.

Furthermore, some of these assets may be considered undesirable by student-housing ownership standards. They're too far off campus. They also might serve schools that are having trouble with enrollment. Some are affiliated with smaller schools in tertiary markets.

Many of the panelists and speakers agreed the best-performing assets are those affiliated with name-brand schools and in infill locations. Furthermore, the assets in trouble tend to be those in markets already oversupplied and that are more than two miles off campus.

But there was some disagreement with this assessment. Nathan Collier, principal and chairman with Collier Cos. and the Paradigm Group commented that making the blanket statement about an effective location for a student apartment could be dangerous. "I'll take something that's two miles off campus, and that has a bus route to something less than a mile away and difficult to get to," he said.

Most of the operators present suggested pre-leasing activities were in line with what was experienced last year. They also acknowledge there has been a slow-up as well. But panelists cautioned owners and potential owners about offering concessions, noting that if one owner/operator offers concessions, others in the market need to do so as well. "Hang in there and don't panic if leasing hasn't picked up," advised Thomas Trubiana, Educational Realty Trust's senior vice president and chief investment officer.

Though capital continues tight, Fannie Mae, Freddie Mac and, to an extent, the US Department of Housing and Urban Development offers lending for the right deal. Fannie Mae vice president Frank Lutz commented that "right deals" consist of stabilized, performing assets. "We want to see product move through at least one leasing cycle so we're comfortable with it," he said. Fannie Mae also likes to look at properties serving schools with a minimum of 20,000 students. Meanwhile, Freddie Mac managing regional director Richard Martinez said his agency will look at financing assets serving schools with a minimum of 8,000 students.

While HUD is an option, James Tramuto, senior vice president, CB Richard Ellis/Capital Markets said the process of obtaining a HUD loan requires a lot of patience. "It's a four-to-six month process to get the loan through, and you have to comply with different regulations," he commented. "HUD's a good alternative to Fannie and Freddie, if you have patience."

The major disagreement during the conference centered around cap rates versus cash-on-cash as a tool to determine value. While Freddie Mac's Martinez discussed a preference for cap rates, Harrison Street Real Estate's Thompson suggested lenders and owners are getting away from cap rates. "They're focusing on yields," he said. "Cash-on-cash." Later on, while American Campus Communities Inc. CIO Brian Nickel stated that no one is certain about cap rates or how to underwrite them for lending purposes, Oliver Swan, vice president of acquisitions with Campus Habitat disagreed. "Cap rates are moot," he said.