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Moving on up: High-end student apartments are changing more than just Madison's skyline

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Lucky Apartments, located at 777 University Ave., is part of a development that involved UW-Madison and the city in its planning.

Chase Bauernfeind knew he wanted to live at The Hub when it was no more than a maze of girders rising at the corner of State and Frances streets, steps from the University of Wisconsin-Madison campus.

“They started building it when I was a freshman,” Bauernfeind said, recalling how he watched its progress and wondered what it would be. “When I saw this building, I was like, ‘I have to live there.’”

Today, Bauernfeind is a senior business student living in the apartment building considered the epitome of the high-rise, high-end student developments springing up near campus.

Living at The Hub helps him be a better student because it helps him manage his time, Bauernfeind said while standing on the building’s rooftop terrace overlooking downtown Madison.

“Everything is in this building. You don’t have to leave to go work out, you don’t have to leave to go to the library, you don’t have to leave to go to the pool,” he said, referring to the building’s quiet study and meeting rooms, high-speed wireless internet access, fitness center and rooftop infinity pool.

“It saves so much time in everyday life,” said Bauernfeind, who is from suburban Minneapolis.

Without income from his job working at a bar popular with students, he wouldn’t be able to pay his $1,100 monthly rent for a room and bath in a four-bedroom apartment, despite receiving a monthly allowance from his family, he said.

The Hub is emblematic of a national trend of amenity-rich student housing developments that are transforming downtown Madison and other college towns around the country. The arrival of the $5 billion student housing industry has brought a new class of developers to Madison, some observers say.

Those concerned that the trend undercuts the university’s espoused commitment to diversity say that UW-Madison and the city should take action to counterbalance the trend by supporting construction of affordable student housing.

They say such conspicuous signs of affluence exacerbate class differences among students at a time when half of undergraduates leave campus with student debt averaging $28,768, according to campus statistics for 2014-2015.

Misgivings about the proliferation of high-end student housing are spreading, said Ald. Zach Wood, a 2015 graduate of UW-Madison whose district includes much of campus.

“I’m not alone in my concern that (the current student housing trend) will price out people from diverse socioeconomic and race backgrounds from attending UW-Madison,” Wood said. “We need to find a way to provide affordable and safe housing for the kids from working class backgrounds that this university has historically done a good job of educating.”

Both the city and university need to play a role, Wood said.

“If we’re going to make UW-Madison and the UW experience more accessible, they’re going to need to be an engaged party,” he said.

But spokespeople for UW-Madison and Education Realty Trust (EdR), a national real estate investment trust specializing in student housing that recently purchased an interest in The Hub and now manages the property, said students have plenty of living options.

“The Hub is one of many student housing options available in the Madison market,” Scott Barton, EdR’s vice president of acquisitions and development, said in an email. “Living or not living in our community has no impact on a student’s access to educational opportunities at the university. A student’s ideal college experience is what they make of it, where they live is only a small part of that equation.”

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Chase Bauernfeind, a resident at The Hub: "You don’t have to leave to go work out, you don’t have to leave to go to the library, you don’t have to leave to go to the pool."

UW-Madison spokesman John Lucas said the university offers “affordable, market-based” housing through the residence halls operated by University Housing. While most of those residents are freshmen, the option is available to upperclassmen, Lucas said.

“For those students who choose to live in apartments, houses or other types of housing in the area, there is a wide mix of options and price levels available," he said. “Those rents are determined by the local housing market, over which the university has no control."

UW-Madison’s University Housing has room for 7,462 students in its 19 residence halls. Freshmen are not required to live in the residence halls, but most do, said Brian Ward, director of residence life and student housing. Freshmen numbered 6,270 last academic year out of a total 29,580 undergraduates, according to campus Academic Planning and Institutional Research.

University Housing is in the process of remodeling its older halls, but Ward said there are no plans to add new ones.

Prices range from a low of $7,574 this academic year for a bed in a triple room to $9,539 for a single room, according to a University Housing price list.

Those prices are among the lowest at Big Ten schools, said Ward. But they are not directly comparable to rent at private properties in Madison, he said, because some meal costs are included. While eat-all-you-want buffets are a thing of the past, residence hall occupancy gets students discounts of 30 percent on meals at any of seven campus dining locations.

There is even more important added value to living in the dormitories, particularly for freshman, Ward said.

“Our focus is on much more than collecting rent,” he said. “We’re a student service to help students be more successful academically.” Residence halls offer a variety of programs — more than 3,500 last year — on a range of topics from safety on campus to tutoring and academic advising.

Still, many students opt to live off campus in private housing after freshman year, Ward said. Some say they want cheaper rent, which often requires living in cramped quarters or aging housing in varied states of repair, he said.

Private companies have offered larger-scale campus area alternatives to dormitories or aging housing stock for decades. Dating back to the 1960s, the Towers, a private dormitory on State Street, offered what were considered high-end accommodations known to be popular with out-of-state students.

The lucrative national student housing industry emerged in the late 1990s in response to untapped demand of the nation’s 85 percent of college students who live off-campus, renting units by the bedroom or even the bed, and enticing students with high-end amenities, Bloomberg News reported in August. Shares in EdR, the Memphis based owner and operator of The Hub Madison, are up nearly 40 percent in the last 12 months.

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The Hub holds a commanding presence on State Street.

The student housing sector had been ignored by the mainstream real estate industry for decades, according to Bill Bayless, CEO of American Campus Communities, the other major national real estate investment trust specializing in student housing. “This is an industry that is ripe with opportunity,” NBC quoted Bayless saying in 2014.

It was a local project that produced Lucky Apartments, 777 University Ave., the first student development on a scale approximating the national market. The public-private redevelopment of the aging University Square shopping mall involved UW-Madison, the city of Madison and Madison-based Executive Management, Inc.

The 359-unit Lucky Apartments, opened in 2008, offers rental options from $585 a month for a shared bedroom in a four-bedroom apartment to $1,450 a month for a private one-bedroom apartment on the penthouse floors, 11-14.

Planning for the project dates back to 1999, when students voted to use $17 million in future fees to support construction of a new student services center, including health services, financial aid and space for student organizations. That funding was part of a $56.86 million contribution to the development by UW-Madison.

The city of Madison, for its part, considered the project in several pieces, which allowed tax increment financing — unavailable for student housing under city ordinance — to be used to help fund the construction of retail space.

Construction in the city stalled during the Great Recession, but a 2013 revision of the city’s zoning code, which allowed higher building heights in more parts of the city, helped attract national student housing developers to Madison, said Ald. Mike Verveer, who has represented downtown District 4 since 1995.

The lucrative private student housing market heated up just as top-ranked public universities across the country were feeling the pinch from years of reduced funding from their states and looking for alternative sources of revenue.

Andra Ghent, a professor of real estate at the Wisconsin School of Business, said high-end student housing is feeding demand. The ability to rent by the bed to a population likely to be seduced by amenities that aren’t expensive to build makes for a potentially high return on investment, she said.

“Once somebody makes a few good returns, you get a herding behavior,” Ghent said. “But I don’t know if the returns will be that attractive going forward.”

Part of the rate of return in Madison is due to the tight overall rental market.

“We’re very short on housing supply, at least in short term," she said. "In the longer term more supply will bring down the price."

At UW-Madison, officials under criticism for raising tuition for Wisconsin students looked to higher-paying out-of-state and international students for additional revenue.

Out-of-state and international students pay more than twice as much in tuition — $16,369 and $16,869 a semester, respectively — for a typical full-time course load in fall 2016. While tuition for resident undergraduate students has been frozen since 2013, tuition for out-of-state and international students was raised more than 10 percent this fall from the spring semester.

The proportion of nonresident and international students among undergraduates at UW-Madison rose 29 percent over the past decade, from 22 percent of the student body in 2005 to 28 percent in 2015.  Chancellor Rebecca Blank convinced the UW System Board of Regents to lift a 27.5 percent cap on nonresident incoming students, but enrollment breakdowns for the current semester are not yet available, officials said.

In addition to paying higher tuition, fewer out-of-state students receive need-based federal financial aid; 4.9 percent in 2014-15, compared to 8.2 percent of resident students.

Concerns over the impact of the proliferation of high-rise, high-end student housing developments prompted several UW-Madison student teams to study them as final projects in their Geography 305 class last spring.

Emmet Gaffney, now a junior studying real estate and finance, worked with his project partners to survey students living in The Hub, Statesider and College Court townhouses. They found a large majority, nearly 80 percent at The Hub and some 90 percent at Statesider, were from out of state, Gaffney said. In contrast, nearly 80 percent of the College Court students were from Wisconsin.

Those findings correspond with the popular belief that high-rise, high-amenity student housing attracts mostly out-of-state and international students, Gaffney said.

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Emily Biersdorf, a UW-Madison student and president of the Working Class Student Union: "There are so many other things to use that [rent] money for — study abroad or another club. College is such a unique time in life. Once you leave, a lot of opportunities aren’t there anymore."

The situation contributes to segregation of students by geography and income, he argued. With that, “students lose an integral part of going to a state school — exposing yourself to different types of people,” said Gaffney, who is from affluent Westchester County, New York.

According to Gaffney, who said he has had to take out student loans to help cover college expenses like living in a Langdon Street apartment, “looking in from the outside” on a more luxurious lifestyle can strain relations among groups of students.

“When it is in your face how some kids can enjoy a hot tub in the building and you can’t, it naturally creates tension,” he said.

Similar concerns about the impact of high-end housing near campus were expressed by students active in class issues on campus.

Sam Park, a member of the Working Class Student Union, remarked that the exclusivity extends beyond housing that forces students of modest means to live farther from campus to the high-end retailers on the gentrifying streets around campus.

“It creates a space not accessible to working class people,” said Park, who lives with his family in public housing in Madison. “It sends a message that the university wants the most affluent students to have the most accessibility to facilities on campus. Working class students are pushed out and it becomes difficult to utilize resources or attend events.”

Add higher transportation costs to the price of not being able to afford housing close to campus, said Emily Biersdorf, president of WCSU. Biersdorf moved from a women’s co-op in the heart of campus last year to an apartment near UW Hospital to be able to afford her own bedroom. She said she wouldn’t live in one of the luxury high-rises even if she could.

“It’s not just the environment it creates, it’s that there are so many other things to use that money for — study abroad or another club. College is such a unique time in life. Once you leave, a lot of opportunities aren’t there anymore,” said Biersdorf, who is from Oregon, Wisconsin.

UW-Madison collaborated on an off-campus development with apartments for affluent students with the Lucky project, Biersdorf said, and should do it again for less affluent students more likely to be state residents.

“It would be nice if the university would also support more affordable, but safe and reliable housing near campus for students who can’t afford luxury dorms,” she said.

But The Hub doesn’t seem expensive to Omar Mandurah, a sophomore in computer science. Mandurah paid $1,700 a month in Boston for an apartment he shared with two roommates. At The Hub, he pays $1,200 a month for his own studio apartment, he said. Not one to party a lot, the scholarship student said he most appreciates its location near his classes.

And high-end student housing isn’t an obstacle to meeting a wide range of people, said Sarah Godfrey. The junior from suburban Milwaukee has lived in the Lucky Apartments since she was part of a special, supportive program for freshmen. That year she had roommates from India, Minnesota and New Jersey, Godfrey said.

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The James, also known as Hub II, is under construction at center. It's flanked by The Hub at left and the Aberdeen, a building constructed in 2004, at right.

“There is a higher number of international people at Lucky,” she said. “And lots of international students are some of my best friends now. It has been interesting to meet people from different countries and learn about their cultures.”

Godfrey said she realizes that not all students can afford to live at Lucky, but that doesn’t seem to affect socializing on campus much.

“It’s not like if you live in a super high-end place, you don’t have friends from anywhere else,” she said.  “Students don’t seem to care where you live. I have friends who live all over.”

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Brooke Evans is a formerly homeless UW-Madison student who has become an activist on issues of housing and other basic needs for low-income students. She said she's frustrated that campus officials have not adequately embraced socio-economic diversity.

“At what point will the university fulfill its responsibility to provide housing that’s more affordable?” she asked.

Echoing that call is Sara Goldrick-Rab, a Temple University professor and director of the Wisconsin HOPE Lab, which researches college affordability. The current trend toward high-end housing is the exact opposite of what needs to happen, she said.

“The same conversation we have about affordable housing, we need to have about affordable housing for students,” Goldrick-Rab said.

The HOPE Lab’s work looks at factors that make it harder for students to complete school, especially those who must work and borrow to pay for it.

“Living costs are the vast majority of the cost of attending college,” Goldrick-Rab said. “Let’s not double down on it. Students need to be able to buy books, not spend all their money on rent.”

She challenged UW-Madison to take a creative approach to addressing the issue.

“Forward-thinking folks would be commissioning architects about how to make affordable housing for undergraduates,” she said.” They would be looking at doing ‘tiny houses.’ Get the design lab on that.”

Wood, the campus-area alder, also argued that the university should work more on affordable housing. Officials talk about fostering diversity, “but I haven’t seen any sort of housing proposal from their end that makes me encouraged,” he said.

Wood wants to eliminate an ordinance provision prohibiting the use of tax increment financing for student housing developments, but is also awaiting a study of student housing now being conducted by the city’s planning department.

That’s no easy task, said Matt Wachter, Madison's housing initiatives specialist.

Determining which developments qualify as student housing can be tricky because many new amenity-rich developments are similar to housing built for young professionals, Wachter said.

Figuring out how much students can afford is more difficult than it is for other populations, Wachter said, because Census data on income that usually informs affordability calculations is not as applicable.

Students may have low or no income, but their living costs may be covered in whole or part by their families, scholarships or student loans, he said.

Verveer said that the lucrative student housing market at UW-Madison attracted national developers to the city who discovered a bigger market than they expected.

“Out-of-state developers have said they can’t believe how deep and wide the rental market is here,” Verveer recalled. “They say they’ve never seen such an exceedingly low vacancy rate.”

So those student housing developers looked also to the young professional market, fed in recent years by well-paid workers at Epic Systems in suburban Verona.

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The Uncommon apartments, opened last month at 110 N. Bedford St., and The James, under construction at 510 University Ave., both have areas for students and young professionals, Verveer said.

“The lack of affordability is the primary concern regarding new building construction downtown,” Verveer said. That includes student housing. “It’s not unusual to talk with an in-state UW undergraduate whose rent is higher than their tuition bill."

Verveer supports Wood’s proposal to revise city ordinance so tax increment financing can be used to develop student housing, but he’s not sure that would have much effect. Projects funded though TIF depend on sizable increases in the assessed value of the property to pay back the city’s investment. Housing developments don’t generally produce that kind of increase in valuation, Verveer said. What is needed is a mixed use development that creates commercial space, like the Lucky Apartments complex.

What’s more, the federal tax credit program most often used to create affordable housing specifies that full-time students can’t use their low incomes to become eligible to live in the housing, Verveer added.

A more realistic source of funding for affordable student housing might be the city’s own affordable housing fund, he said.

In addition to affordability, Verveer cited concern over the “canyon effect and the changing landscape downtown that new high-rises have created.”

That’s a concern shared by John Harrington, a UW-Madison lansdcape architecture professor and member of the city’s Urban Design Commission. Harrington said the surge in high-rises and influx of national developers makes him concerned about the changing sense of place downtown.

“We need to maintain diversity on any street downtown,” Harrington said.

That means, in addition to housing, creating retail and other spaces that promote public activity. Some new housing developments are large blocks with little movement in and out of buildings, he said.

The patterns of shadow cast by tall buildings also is an issue, especially on State Street, a pedestrian mall, he said.

“The iconic nature of State Street for Madison means we need to be careful about what we do there,” Harrington said. Density is needed to support transit and other services that support economic development, “but you don’t want so much density that it’s not a comfortable space to walk in.”

For now, students like Bauernfeind who are drawn to buildings like The Hub are plenty comfortable.

“Honestly, places like this are beneficial to students because it’s the one time in our life where we really get to enjoy our college experience odyssey,” said the senior bartender majoring in business. “I know after college, that’s the time to save money and live simply.”

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