Dorm demand delights developers

The condo market is losing steam, which may prompt more developers to earn advanced degrees in building student housing.

Though dormitories remain well below rental housing on the totem pole of profit tiers in New York real estate, large-scale expansion by city universities means developers will stay busy meeting the demand for student housing.

“There is a constant appetite in the academic community for dorms for their students, because frankly, without housing accommodations, it’s very hard to attract students,” said Jeffrey Levine, president of Levine Builders, which has built two dormitories that house a substantial number of students from the School of Visual Arts. He is considering doing a third.

“With the ever-increasing demand for rental apartments in Manhattan, if universities don’t take matters into their own hands, they can find themselves shut out of the housing market,” he said.

Both Columbia University and New York University, the largest residential schools in Manhattan, are in the midst of large expansion phases, and they aren’t alone.

Projections from the National Center for Education Statistics released in September 2006 said that enrollment nationwide would increase 13 percent over the next seven years. New York University expects that it will grow to 46,500 students within 25 years, from 40,000 students currently. The university is the largest landlord in Greenwich Village, and it currently owns 2 million square feet of undergraduate housing and leases another 1.3 million square feet of space. Plans for the future would have NYU owning 4.3 million square feet by 2031, according to Kelly Franklin, a spokeswoman for the university.

She would not discuss the type of student housing under consideration, and said it was “too early in the process” of evaluating the school’s needs.

The only NYU dorm project now under construction, at the site of St. Ann’s Church at 124 East 12th Street, has faced some community opposition. The Hudson Companies is building the 26-story tower.

“That’s a building that another company is building, and we’re leasing it for a year, with the intent to buy it the following year,” Franklin said. “But we’re not actually constructing it.”

Columbia University houses approximately 5,200 undergraduate students, according to Robert Hornsby, director of media relations for the university. Ninety-four percent of all undergraduates and 99 percent of all first-year students live in residence halls. There are 17 undergraduate residence halls and 16 brownstones (housing 10 fraternities, three sororities and three special-interest communities) on or located around the university’s Morningside campus.

Hornsby would not discuss plans for future student housing at Columbia, which has been locked in a contentious battle with the local community about its planned expansion into West Harlem. The 17-acre proposed expansion is under review by the city. If approved, the university would add to its Morningside Heights campus, extending its boundaries from 129th to 133rd streets and from Broadway to 12th Avenue. It would also add three new properties from 131st to 134th streets on the east side of Broadway.

Other schools, such as the School of Visual Arts and the New School, have also aggressively set about expanding their campuses, developers said. Levine’s dorm at 47 Third Avenue for SVA has 150 units and will open in September. A dorm for the school on 23rd Street between Lexington Avenue and Third Avenue, with about 200 units, opened eight years ago.

Levine said there are several reasons why building a dormitory could appeal to developers. Since building a residential apartment complex can take as long as three years, the market can change. Student housing is often pre-leased for as long as 10 years with built-in rent increases and options to extend the arrangements.

“You’re always at the jeopardy of the marketplace,” he said. “On the other hand, if you’ve pre-leased the building with an academic institution, you can have a completed building with no vacancy or loss factors.”

Developers can also take advantage of community facility zoning to make the building larger than it would be under normal residential zoning, Levine said. However, that can create problems applying the 421-a tax abatement if the developer decides to go back to residential apartments.

“So we have always taken the posture that we would rather build in accordance with applicable zoning, so in the event there was an issue with the academic institution, we would have the option of going back to a pure residential use,” he said.

Edward J. Minskoff, president of Edward J. Minskoff Equities, said the returns on a dormitory can be adequate.

His company is planning a 1,600-bed dormitory for use by students at a site on Northern Boulevard in Queens, a few blocks from Queens Plaza North and a block from the 39th Avenue N and W subway station.

“These are not home run returns, but the returns can be acceptable,” he said. “There’s a significant shortage, so demand is there.”

Minskoff said seven or eight academic institutions were interested in leasing his dormitory, which is close to public transportation — important for students.

“Economics, need, requirement, demand, location, all of the above” play a role in whether a developer decides to do student housing or residential apartments on a site, Minskoff said.

Community opposition can also be a factor in locating dormitories, said Stanley Conway, a managing director with Coldwell Banker Hunt Kennedy Commercial who helps schools locate dorm sites.

“NYU and the New School are in an area that doesn’t want any more kids; doesn’t want another 500-unit building,” he said. “That’s their biggest challenge.”

One developer, White Acre Equities LLC, solved that problem by opening a dormitory in Brooklyn in a former assisted living home that had been deserted for several years before the developers proposed a dorm.

“Certainly neighborhoods don’t like vacant buildings,” said Jesse Hertzberg, vice president of development and acquisitions for White Acre. “I’ve read the Community Board heard rumors there was going to be a methadone clinic in the building. With rumors like that, a dormitory sounds fantastic.”

The fully furnished four-story building at 385 McDonald Avenue in Kensington will house about 120 students in single and double units. Within three months, all of the units were leased to students from Brooklyn College, Brooklyn Law School, the Pratt Institute, Brooklyn Polytech and others. About 60 percent of students are studying in Brooklyn, the other 40 percent in Manhattan.

Monthly rents range from approximately $900 to $1,000 — and include utilities, high-speed Internet and cable. The building is now fully leased for the fall and almost fully leased for the spring, Hertzberg said.

“I think it’s fair to say that given occupancy that rental increases are forthcoming for the subsequent school year,” he said. “We also have a long waiting list.”

Although a developer can place a handful of students — each paying rent — into a space that might typically be occupied by one family and it may appear that he or she could make a killing on a dorm, it doesn’t work out that way, he said.

“Dormitory stays tend to be shorter, with three-month to nine-month leases, so there’s a lot of turnover,” Hertzberg said. “You may have costs associated with that. Also, although the finishes aren’t as nice as residential apartments, dormitories have to be furnished. And all of those have to be durable, so you invest up front on that.”

Still, White Acre plans to do more.

“I think the rental income can be higher with a dormitory with the right internal configuration, and in a neighborhood where market residential rents are of medium strength,” he said. “But I think in a prime Manhattan neighborhood where market residential rents are very strong that it would be hard for a dorm to compete.”