5 Questions – Greg Martini
The recent upset in capital markets caused by COVID-19 has resulted in a slow-down in transaction volume across the student housing sector. There are a number of contributing factors for this slowdown; lack of capital markets accessibility, uncertainty surrounding in-person classes, lack of pre-leasing, etc. With this in mind, Mike Nagy with Cardinal Group Consulting decided to sit down (virtually) with Greg Martini, VP of Acquisitions with Cardinal Group Investments to get a sense of how the investment team is operating in a COVID world.
Mike: What’s been occupying most of your time these days? (Professionally)
Greg: Most of my recent weeks have been spent on the phone with industry relationships getting a full understanding of the temporary dislocation in the capital markets as they react to COVID. Those sentiments change daily as the landscape shifts and we need to be sure we are in a strong position to take advantage of opportunities that are presenting themselves during this time. We are just as busy as we have always been evaluating opportunities as we continue to focus on acquiring new communities and growing the Cardinal portfolio. Alongside seeking strong acquisition targets, we have continued to understand the perspective of our partners and peers about their motivations and strategy in our current landscape to ensure we can be the best partner possible to everyone we work with.
Mike: Do you think there will be fundamental shifts in the student housing industry? If so, what are they?
Greg: While I don’t believe there will be a fundamental shift in our industry, I do believe there will be a new look and feel to student housing when the “new normal” presents itself after COVID. However, I don’t anticipate this new normal impacting our investment thesis moving forward. There could certainly be some short term pain in a few markets that will not be ready for “in person” learning in the fall, but I fundamentally believe in our sector and the long term viability of student housing as it relates to the value of a college education. Confidence around the industry continues to grow as more schools announce in person learning, collection data becomes available and pre-leasing has continued to improve after velocity slowed in April and May, which all bode well for the future performance of student housing.
Mike: What do you think the biggest point of risk exposure is in the sector and how should owners respond?
Greg: In the majority of the markets that we own and operate in, I think the biggest risk is the short term pain that I referenced earlier. Markets that are not able to return to in-person learning or Universities that experience an enrollment dip as a result of COVID could have a very challenging 2020/21 academic year. It will be important for owners in these markets to align with their partners and debt providers to create a strategy to weather the storm until spring or the following fall when markets stabilize and get back to normal. Prior to COVID the risk was centered around enrollment and supply within respective markets and the short term pain from COVID might benefit the industry long term with a period of less supply and strong absorption within the existing beds and the prospect of increased enrollment come 2021/22.
Mike: How has COVID-19 changed your business plans when looking at acquisition opportunities?
Greg: Our main pain point has been a lack of available credit for acquisitions and limited number of solutions present in the market. This uncertainty in the global capital markets has led CGI to focus on a few different strategies. We have continued with our strategy of targeting assets in strong markets with either strong cash flow or value enhancement opportunities. But, we’ve also started focusing on distressed assets and operators who could benefit from a relationship, whether it be a partnership or sale of their position, with a group like Cardinal who can utilize its management expertise to implement a turn-around strategy.
Mike: Have you found any creative ways to spend your free time over the past few months?
Greg: Luckily, I have not had to find ways to be creative with my free time as I have let my kids dictate how I spend most minutes. We have been to zoos, museums and aquariums around the world (online), we have been on PJ Masks adventures, read books, played outside in the lovely Colorado weather along with countless hours of games, dancing, crafting, zooming with family and friends and spending quality time together. I’d be lying if I said there wasn’t a fair share of crying by all parties. It’s been an experience that I didn’t see coming, but one that I wouldn’t trade for anything at the end of the day. My typical schedule would never have allowed for this family time, so it’s kind of been a blessing in disguise to some extent.