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Commercial Real Estate
Business Observer Friday, Oct. 12, 2018 2 months ago

Coastal Ridge goes back to school with student housing investments

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The company is among the fastest-growing buyers of student rental housing nationwide. Florida is a key market.
by: Kevin McQuaid Commercial Real Estate Editor

When Patrick McBride and two college buddies at Miami University of Ohio acquired their first student housing complex several years ago, they had no inkling that their partnership would eventually become among the fastest-growing owners of multifamily student housing rentals nationwide.

Today, Coastal Ridge Real Estate control $1.6 billion worth of assets, including six projects in Florida, its largest set of holdings in any state outside its home base of Ohio.

But if its current pace of acquisitions in the Sunshine State continue, it could soon be Coastal Ridge’s biggest concentration of assets among the roughly 15,000 student beds and 4,300 apartment units the company owns.

That’s because Coastal Ridge has purchased all of its Florida projects over just the past 24 months, in college towns from Gainesville to Fort Myers.

In Southwest Florida, Coastal Ridge has acquired a pair of student-dominated complexes near the fast-growing Florida Gulf Coast University, together with a newly completed luxury complex called Spectra.

Taken together, Coastal Ridge invested just over $194 million for the 1,352 units.

“We’ve studied the trends in Florida and elsewhere, and we buy into the demographics that Florida is generating,” says Patrick McBride, 36, Coastal Ridge’s managing partner.

“We’re pretty opportunistic, but we also strongly consider student enrollment growth in an area and overall population growth,” he adds. “We’re investing in properties in the Southeast part of the U.S. because that’s where we see people moving.

Patrick McBride is Coastal Ridge Real Estate's Managing Partner

“And I think we like the specifics of the Gulf side of the state and our preference is to buy on the west coast of Florida because there are attributes there we just don’t think exist elsewhere.”

Its latest purchase, however, isn’t your parents’ student housing — or likely even yours.

The Reef, a 228-unit, 924-bed complex completed in phases in 2016 and last year that Coastal Ridge paid $78.75 million for, features a pair of resort-style swimming pools complete with cabanas; outdoor billiard and ping pong tables, Bocce ball, a fire pit and a sand volleyball court.

Indoors, there’s a 24-hour fitness center with the latest in exercise equipment and a cyber café serving complimentary Starbucks coffee.

Units are equally amenitized, replete with 50-inch, high-definition television sets in each unit; high-speed Internet and cable; full-sized washers and dryers and upgraded granite kitchen countertops.

Rents, however, are equally outsized — at $730 per month to $850 per month per student, not per unit.

The Reef deal matched Coastal Ridge’s similar high-end deal for Spectra, a recently completed 324-unit Fort Myers complex that the company bought in February for $71.4 million. Like The Reef, the 32-acre complex offers unique amenities such as walking trails and upgraded finishes in each unit.

“We paid big money for both Reef and Spectra, but we think long term they’ll both prove to be solid bets,” McBride says.

Of course, not all of Coastal Ridge’s deals skew toward Class A properties with high-end rental rates.

In July, the company paid $44 million for the 800-unit Coastal Village Apartments, adjacent to The Reef. Unlike its neighbor, Coastal Village isn’t quite as upscale or targeted to affluent students.

McBride says that’s intentional: The company wants its portfolio to span various price points.

“They’re in all different levels of housing, which is good,” says Mitchell Mondry, president of M Group, an investment firm that has provided equity in various Coastal Ridge deals.

“We like that diversity,” he adds. “But in regards to the full-amenity properties, as I call them, like Reef, we’ve found that the demand for those properties among both students and investors alike is stronger than supply.

“But more importantly, in everything we go into, we look for strong property management, and we’ve found that in Coastal Ridge.”

McBride and partners Andy Lallathin and Jay Harkrider decided from the outset to conduct all of their property management in-house, an attribute that McBridge contends sets Coastal Ridge apart from its competition.

Its why Coastal Ridge’s employee rolls have swelled to just 450 employees in just five years.

McBride went into private equity after college, and Lallathin and Harkrider took other paths into finance and real estate. But they remained in touch, aglow with the memories of their initial success at Miami U.

In 2013, as the nation emerged from its longest economic recession in decades, they joined forces to capitalize on what they saw as an emerging opportunity to manage multifamily rentals.

Within two years, that strategy grew into a plan to buy properties below replacement costs.

Its first deal involved $75 million worth of student housing at Ohio State University, before moving on to Muncie, Indiana; Morgantown, W. Va., and elsewhere.

"In everything we go into, we look for strong property management, and we’ve found that in Coastal Ridge.” — Mitchell Mondry, president of M Group, a Coastal Ridge financial backer

“We started off to do a project that was fun together, and the success allowed us to keep that going,” McBride says.

Today, the company owns more than 40 complexes nationwide.

“They’ve done a great job of maintaining their standards pretty nicely,” says Mark Grace, a senior vice president with real estate financier Walker & Dunlop, which backed Coastal Ridge’s Spectra and Reef deals.

“We like the discipline they’ve maintained, while having the desire to expand their portfolio,” he adds.

“Everybody wants to grow and buy good real estate, but that’s sometimes difficult to do with all the competition today and investors out there chasing yields. For Coastal Ridge to have stuck to their guns and buy only those properties that meet their criteria is very admirable.”

Still, McBride says he expects Coastal Ridge’s growth to continue unabated, especially as capital from institutional backers and family offices alike remains abundant.

The company’s biggest challenge, he says, is finding “smart deals” at the roughly 75 universities it has targeted for acquisitions.

Even so, by 2020 he projects Coastal Ridge could have $5 billion in assets under management — especially in markets like the Gulf Coast.

“For now, the numbers make sense, the students like them, and they’re good draws for the universities as well,” McBride says of the Reef deal and others. “We just think that going forward they are only going to do better.”

 

 

 

 

 

 

 

 

 

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