Candlebrook Adds Dormitories With $230 Million Purchase

Candlebrook Properties LLC, a closely held company with about 5,000 apartments in the eastern U.S., is diversifying into student housing with the $230 million acquisition of five off-campus properties.

Candlebrook joined with Lubert-Adler Partners on the purchase of buildings with about 3,400 beds near colleges in Georgia, Indiana, Kentucky and Virginia. Formerly known as Vantage Properties LLC, Candlebrook began as an investor in New York City apartments in 2005 and later expanded to New Jersey and the Philadelphia area.

“Student housing is a natural extension of our pre-existing business line,” Neil Rubler, president of New York-based Candlebrook, said in a telephone interview. It’s “a business that’s far less crowded than multifamily, which has been our core business.”

Capitalization rates on apartments, a measure of profitability, have dropped as investors drive up property prices. Student housing has become an attractive alternative, luring homebuilder Toll Brothers Inc. and private-equity firm Colony Capital LLC to an industry already home to real estate investment trusts American Campus Communities Inc., Campus Crest Communities Inc. and Educational Realty Trust Inc.

“Industry participants argue that student-housing cap rates should be in line with or lower than those of traditional multifamily,” Dave Bragg and Ryan Burke, analysts at Green Street Advisors LLC in Newport Beach, California, wrote in an Oct. 8 research note. “But student housing is more operationally intensive and offers inferior long-term growth prospects.”

Aging Population

The student population will decline as more people study online and the large number of Americans in their teens and early 20s outgrows their college years, Bragg and Burke said.

Campus Crest said yesterday that it will stop building student housing and that its chairman and chief executive officer, Ted Rollins, resigned. Shares of the Charlotte, North Carolina-based company dropped 36 percent in 12 months before gaining 15 percent after the changes were announced.

Rubler said he expects demand to increase for Candlebrook’s housing, which is close to established universities with more than 20,000 students each that attract foreign pupils as well as Americans. The properties are near Indiana University, Kennesaw State University in Georgia, the University of Kentucky and Virginia Commonwealth University.

Unlike traditional college dormitories with shared bedrooms and bathrooms, Candlebrook’s housing features amenities such as one bathroom per bedroom along with swimming pools, hot tubs, fitness centers, game rooms and high-speed Internet.

Educational Enhancement

“Our focus is on providing a product that’s very, very finely tuned to the needs and wants of this particular demographic,” Rubler said. “One could argue that the set-up of these properties enhances the educational experience.”

Candlebrook bought the residences from Trinitas, a closely held developer of student housing based in Lafayette, Indiana, that continues to own properties in Indiana, Illinois and North Carolina, and has five projects with 3,000 beds under development.

“We determined that the time was opportune to harvest profits,” Alie Hrabe, a spokeswoman for the company, said in an e-mail. “Trinitas remains extremely bullish on the student-housing sector, and we expect that additional capital from the portfolio sale to Candlebrook will be reinvested into Trinitas’s future student-housing development projects.”