San Diego Business Journal

PIERCE EDUCATION PROPERTIES LP

CEO: Frederick W. Pierce.

Revenue: $31.4 million in 2011; $19.5 million in 2010.

No. of local employees: 17.

Headquarters: San Diego (Mission Valley).

Year founded: 1995.

Company description: Owner, manager and developer of student housing and education-related real estate, with a national portfolio of $275 million.

Key factors for success: Company maintains geographically diverse portfolio, focusing on student apartments near large public universities.

Studying real estate and finance during his undergrad and grad-student days at San Diego State University, Frederick W. Pierce learned some valuable lessons about higher education’s business impact beyond the campus.

“I really got to see what a tremendous economic generator a university can be to the surrounding area,” said Pierce, now president and CEO of San Diego-based Pierce Education Properties LP. “They are like micro markets, and they are resistant to the overall economy in lots of ways.”

For more than a decade starting in the mid-1990s, its predecessor company, also founded by Pierce, led development of much of the student housing and related buildings now seen on and near the SDSU campus. In its current incarnation, Pierce has become among the largest U.S. investors in student housing and other education-related real estate, with a $275 million national portfolio that it owns and manages.

According to the research firm Real Capital Analytics, Pierce Education Properties ranked as the nation’s sixth-largest buyer of student apartments over the past five years, acquiring $252 million in properties between 2007 and 2011.

Pierce said the company recently closed on a $23 million refinancing on a 268-unit housing community it owns near the University of Oklahoma in Norman. It is now in escrow on three other properties near U.S. college campuses, which it plans to purchase at a total cost of nearly $120 million.

Parental Involvement

Its current portfolio includes student apartments near University of California Riverside, Arizona State University and Michigan State University. Most properties consist of three and four-bedroom units shared by several college students, have low vacancy rates, and usually have rent payments guaranteed by tenants’ parents.

Pierce is active on boards of SDSU and the California State University system, and his insights on campus life inform his investments.

His company generally focuses on properties near large public universities, with enrollment of at least 15,000 and participation in Division I football programs. “We have found that students at these universities are much more involved on campus, and generally want to live in settings where they can keep close proximity and close ties to the campus.”

Those priorities are apparently working for the bottom line. Pierce said his privately held company saw revenue in 2011 rise more than 60 percent from the prior year, to $31.4 million, and is on track to rise an additional 27 percent this year, to $40 million.

The company’s national workforce will total about 200, including 17 at its Mission Valley headquarters, once pending transactions close.

Pierce said his company is aiming to invest between $100 million and $200 million annually over the next few years. Property prices have been on the increase amid growing buyer competition from national investment firms such as American Campus Communities of Austin, Texas; Education Realty Trust of Memphis, Tenn.; and North Carolina-based Campus Crest Communities.

Going to Schools

In a recent report, the Atlanta-based investment and brokerage services firm Apartment Realty Advisors Inc. noted that student apartment real estate transactions have been rising sharply during the past two years.

Demand is being fueled by shifting demographics, rising college enrollments, and ample sources of low-cost capital available to investors, including life insurance companies, private equity firms, and agencies such as Freddie Mac and Fannie Mae.

Citing U.S. Census Bureau data, ARA researchers noted that the number of 18- to -22-year-olds is expected to rise more than 13 percent by 2040, to more than 25 million. That will likely boost demand for student housing in that age group.