Riding the Crest: Student housing developer has found a way to grow while keeping costs low

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CHARLOTTE – Campus Crest in 2004 didn’t own and hadn’t built a single residential bed.

Nine years later, the Charlotte-based student housing developer is approaching 50,000 beds in 87 student-specific apartment communities, spread across 25 states. The company is also working on its first international community, which will be delivered next year in Montreal.

Ted Rollins, CEO of Campus Crest, said it all comes down to the quality of the people he has working for him. “We, from the start, wanted to attract the best folks, so we have been fortunate over the last nine years to have some of the best talent in the industry.”

But the steep rise of Campus Crest comes down to more than just its employees. Any developer could have attracted the talent. The real story behind the rapid growth is cost efficiency.

Campus Crest uses a business model known by different names: design/build, construction management, vertical integration. It all means the same thing – that the company is responsible for all aspects of its projects. From design to development to construction, then to even property management, Campus Crest handles it all.

Rollins said they do this for one reason.

“We build a prototype and we build the same thing over and over,” he said. “It’s an economy of scale. We don’t have to reinvent the wheel each year. We eliminate any markup from a middle man.

“From the time we started, we were vertically integrated so we could control everything that created value and maintained value.”

From zero to No. 2 in nine years

When Rollins started Campus Crest in 2004 with his partner, Mike Hartnett, they had $17,000 between them with which to work. Both had previously worked in the apartment industry, Hartnett on the development side and Rollins on the financial side. But they saw a gap in the product available specifically for students and decided they’d fill that niche.

“There was a large demand for a product built to rent to students,” he said. “But we noticed that across the U.S. there was a lot of demand, especially for what we know as a primary non-flagship school in a state system, that wasn’t being met.

“They’re not the name-brand flagship schools, but they’re great schools with a solid market.”

By flagship schools, Rollins is talking about a school like the University of North Carolina at Chapel Hill. Campus Crest doesn’t have a community there, but does have communities at East Carolina University and the University of North Carolina at Asheville.

Asheville is actually where Rollins and Hartnett chose to build the company’s first community, a 448-bed project called The Grove.

The Grove was a hit with college students in Asheville, with its all-inclusive format. Not only are the entire apartments furnished, but all utilities are covered in the rent.

After Asheville, Campus Crest chose to replicate The Grove in other college towns, and now owns and operates those communities near campuses like Georgia Southern University, Auburn University and Colorado State University.

But The Grove is just one of three community types offered by Campus Crest. The company also has Copper Beech communities and its newest offering, Evo.

In March, Campus Crest acquired Copper Beech Town Home Communities based near Penn State University, and is now replicating the project, which is targeted to upperclassmen, elsewhere.

Evo is an urban infill product. The first Evo project is a 33-story student apartment building going up in Philadelphia, near the University of Pennsylvania.

Campus Crest in nine years has grown from a $17,000 startup to the second biggest student-housing provider in the world, Rollins said. The biggest provider is Austin, Texas-based American Campus Communities, he said.

Rollins attributes Campus Crest’s growth to several things: great employees, high demand and solid markets, among other things, but the company’s business model may be the one factor more responsible than anything for that growth.

Vertical integration

Demand for student apartment may have changed over the past couple of decades, but it’s not difficult to determine what today’s student wants in his or her apartment.

Charles Dalton, president of Charlotte-based Real Data, an apartment market analytics firm, said students want more than just a couple of basic outdoor features. They want all-inclusive amenities, they want technology and they want to feel connected.

“Fifteen years ago, it was an outdoor pool and volleyball court,” Dalton said. Now, they’re trying to provide amenities that will attract people, and not just basic housing.

“A big thing with them is providing some level of one-cost utility. A big thing now is technology. Obviously having Wi-Fi and being able to do everything from your smartphone, from paying your rent to adjusting your AC. I think they’re probably more on the cutting edge technology-wise than other apartments because they’re focused on those 20-year-olds.”

Developers know this; that’s not the challenge. The challenge is hiring a design firm to give shape to the developer’s vision, then finding a contractor to add a physical form to the designer’s shape. Once the contractor finishes, the owner then must find a management company responsible for the day-to-day operations of the community.

In that model, developers are outsourcing their vision to three separate parties, and that’s before subcontractors are even mentioned. Campus Crest doesn’t do it this way, instead keeping everything in-house. From the inception of a project, to the drawings and renderings, to construction and management of their properties, Campus Crest takes care of the entire process.

Rollins said doing it this way saves the company between 15 and 20 percent in total costs.

Bill Stricker, vice president of professional development with Carolinas Associated General Contractors, said when several independent parties work on a single project, the chance of making mistakes spikes.

“It increases communication between the designers and the people that are going to be building the project,” Stricker said. “They’re fast-tracking this to expedite the process by rolling it all in together in one collaborative effort. It should save money. That’s the whole idea.”

Dalton said having an in-house contractor is especially helpful for student-specific apartments.

“For student apartments it’s critical that they’re going to be open before school starts,” he said. “Your typical apartment community may be scheduled to open in July or August, but if they’re  late it’s not critical.

“If you’re a student community and you’re not open when the school semester starts, you’re in trouble. They can’t wait a month.”

Coming soon

Campus Crest over the next two years is set to deliver eight projects in college towns across the country, according to the company’s third quarter earnings report.

But, for all its growth and all its communities in the U.S., Campus Crest is curiously lacking a project in the market in which the company is based.

The University of North Carolina at Charlotte is in the midst of a period of strong growth and several developers have started taking advantage of this growth by putting up apartments around the school. Campus Crest isn’t among them.

Rollins said he can’t disclose projects that haven’t been publically announced – Campus Crest being a publically-traded company – but said the company may be looking at UNCC in the near future.

“In the Copper Beech deal we got a piece of land out there (near UNCC),” he said. “We’re working on Charlotte, it won’t be too long.”