Why are some Rexburg student housing owners making the switch to condos?
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REXBURG — Some apartment complexes that have housed Brigham Young University-Idaho students for years as part of the university’s approved housing network are preparing to leave that network to sell units individually as condos.
Why are apartment complex owners taking this route, and what has created a market where this seems like the best move to some owners?
So far, the owners of two Rexburg apartment complexes, Brigham’s Mill and University View, have received plat change approval from the Rexburg City Council, opening the door to leave the student housing system and sell individual units.
A third complex, The Roost, has condos for sale on the multiple listing service and signs outside advertising condo sales, but according to Rexburg Planning and Zoning Administrator Alan Parkinson, The Roost hasn’t started the process for the necessary plat change approval.
“The Roost has not even applied for a condo plat at this time, so no legal sales can be completed until the process is completed with approval from City Council,” Parkinson says.
Requests for information from The Roost did not receive a response.
Erik Mattson is one of the owners of Abri Apartments, which is part of the BYU-Idaho-approved housing network. In his opinion, owners are getting out of that market because they don’t have a better choice.
“The revenue model is broken,” Mattson says. “The reason people are converting to condos is because they have no other option.”
Mattson, who also works for a real estate investing company in Portland, says there is nothing like the Rexburg market anywhere in the country, and it’s the only place the company is losing money.
“In our company’s 50-year history, this is the only market we’ve ever lost money in, and the reason is really simple,” Mattson says. “The university sold us on an idea and didn’t follow through. What they told us was that they would equalize all the semesters, so fall, winter, and summer semesters would all be equal.”
According to BYU-Idaho’s Housing & Student Living page on the university’s website, in spring semester 2022, which ended in July, the total occupancy of approved student housing was only 71.3%. The upcoming fall 2022 semester shows over 92% occupancy.
Rachel Whoolery is the president of the BYU-Idaho Off-Campus Housing Association and is supportive of the apartment complexes that are taking steps to leave the student housing market. In an April letter to the Rexburg City Council, Whoolery threw her support behind the owners of University View, who were seeking a plat change that would allow them to sell their units as condos, which was ultimately approved.
“A main contributor to our low-performing market is that we have a closed system and can only rent to BYUI single students,” Whoolery wrote in the letter. “When there are only 71.1% students enrolled, there are no other options to fill our beds. The beds must sit empty for 5 months!”
According to Whoolery, this amounts to over $95 million of assets “sitting empty every year for almost half the year.”
Mattson says he put Abri Apartments up for sale when most real estate markets across the country were hot, but nobody was interested.
“People asked for information, but when they started to realize all the issues we were dealing with, they didn’t want to buy,” Mattson says. “It’s an incredibly challenging market to operate in.”
According to Mattson, some of the issues that scare potential investors away are that BYU-Idaho has so much control over the properties and can choose to terminate the agreements at any time.
“How do we make money in a market where we don’t have any real insight into what the supply and demand is, where the university can tell us what we can do with our properties, and if there’s any misstep they threaten to kick us out of the program?” asks Mattson. “Banks won’t lend because the university can unilaterally kick us out of the system.”
Grant Collard is an owner with Redstone Residential, which owns several Rexburg housing complexes. Collard says Redstone does not plan to leave the BYU-Idaho-approved housing market, but he is aware of the challenges owners face.
“More than half of Rexburg student housing is listed for sale, or informally for sale ‘off-market,’” Collard says in an email to EastIdahoNews.com “We aren’t seeing them sell either — there are very few buyers for these types of assets right now. This is not normal.”
Collard asserts that student housing was overbuilt and that on-campus enrollment isn’t high enough to keep apartments filled for much of the year. Meanwhile, he says, the condo market is “on fire.”
“There is much more demand for condos or conventional apartments, and much less demand for student housing,” Collard says. “The expense structure of running a project as condos or conventional housing is much lower — those residents pay for their own utilities (not true in student housing), they stay occupied year-round (as opposed to emptying out in the summers), etc. Ultimately, capital goes where it is treated best.”
Collard and Mattson agree that the problematic market could be temporary.
“I think the condo boom to be short-lived, and interest rates will dampen demand significantly,” Collard says. “I believe that enrollment will continue to grow at BYU-Idaho, that new project starts will be few and far between (due to high land prices, construction pricing, and interest rates), and that owners will be more satisfied with their investments in Rexburg long-term. We have decided that we will not be doing any condo conversions for projects that Redstone owns in Rexburg.”
Mattson hopes the university will do its part to bring the student housing market back to a healthy place.
“I think the university is in a position where they are starting to see the problems and will hopefully address them,” Mattson says. “We would love to be good partners with the university. We love the real estate and we love the location. But we can’t afford to stay there and can’t afford to reinvest in the market with the current conditions.”
BYU-Idaho officials did not respond to requests for comment.
Rexburg City Attorney Stephen Zollinger says that while the city recognizes that adequate student housing is important in Rexburg, ultimately it’s not the city’s responsibility to regulate the market.
“The city’s role is very minimal,” Zollinger says. “We have very little control over how people use their property. We strive to allow any use that is not detrimental to the community as a whole, or to the properties in the immediate vicinity.”
Zollinger says that, in the case of apartments converting to condos, the city’s responsibility is to verify that infrastructure and parking needs are met, but not to dictate what the owners do with their properties.
“The city of Rexburg is interested in managing the infrastructure demands within the city for all those who live within our boundaries,” Zollinger says. “How private property owners choose to use their property within the parameters established by zoning is a property rights issue that the city, as an entity, strives to avoid choosing sides.”
Several BYU-Idaho students protested being told to move out of their apartments in April when Brigham’s Mill received a plat change approval from the city council, allowing the owners to sell units as condos. According to Brigham’s Mill resident Guillermo Lemus, who has a contract to live at the complex through September, those residents who chose to stay at Brigham’s Mill were ultimately able to come to an agreement with the owners of the property and stay through the end of their contracts.