The Dean of Student Housing: Why Core Spaces’ Dan Goldberg Invests in Niche Markets

Dan Goldberg has charted an unlikely path to become top of his class in the student housing market. 

A neuroscience major at Brown University, Goldberg fell into a career on Wall Street by accident after teaching tennis to hedge fund legend Marc Lasry, who gave him an internship at Avenue Capital. From there, Goldberg spent 14 years in high finance, splitting his time between Goldman Sachs (GS) and Blackstone (BX), where he acquired $1 billion student housing portfolios and oversaw U.S. core-plus real estate investing. 

Now Goldberg serves as president of Chicago-based Core Spaces, a vertically integrated real estate investment firm and property manager that specializes in student housing and build-to-rent communities. Core Spaces has a portfolio of more than 45,000 student housing beds and 3,000 single-family, build-to-rent homes, with a business plan committed to innovation and outside-the-box thinking. 

Goldberg sat down with Commercial Observer to discuss his investment strategy. 

This conversation has been edited for length and clarity.

Commercial Observer: You’ve been involved in student housing for almost 20 years. How did you train yourself to understand this asset class  especially at a time when it was not  well-known? 

Dan Goldberg: Well, it’s actually quite intuitive in some ways. In college, I lived in a dilapidated row house with my best friends, and the idea that there could be an option that was turnkey, that was safe, that you didn’t have to go get your utilities lined up or go find furniture on Craigslist, and had a great location seemed to be an obvious thing. Even in those early days there was a lot of fragmentation in the student housing space, and even to someone who at the time was six years out of college, it was painfully evident that it was ripe for disruption if you could build something in a great location or was just purposely built, turnkey. 

I do think as a value investor that there’s opacity in the space. There’s a lot of local and specific knowledge. These are buildings designed for students that are institutionally run with operating partners that have developed, through their years, very specific knowledge about what makes a good location. If you just look at a map and say, “Oh, this is on campus,” you and I both kind of know that if it’s next to the football stadium at Brown University, that’s actually a mile and a half away from anything you want to be close to, as a student. And so I saw a real value-investing opportunity to work with operating partners that had legitimate informational advances through their experience on the sites. And so kind of collectively that was my pitch, and we went from there. 

How did you choose the territories or colleges that you felt were ripe for disruption? Walk me through that strategy.  

I’ve probably been to 65 different college campuses over the last decade, which is part of the job. What we focus on at Core is big flagship public universities, typically ones that are growing. When there’s new supply that’s added, it’s typically a small percentage of the overall enrollment growth, and enrollment is, obviously, demand, so you don’t just have to take people out of that shadowy, fragmented inventory. And, in my view, the value of public education continues to be a steal, especially versus smaller private colleges, which also informs our decision to invest in those schools. For example, the University of Maryland, if you’re [enrolled] in-state or even if you’re out-of-state, it has a great value proposition, you get an incredible education. I don’t think that’s going anywhere, and I think that’s gonna be a staple for years to come, whereas some of these schools that are, you know, maybe top 50 or 100 private schools that cost $70,000 a year, I think there’s more of a threat over time to the value of that education versus the public. And so we generally focus on those types of universities. 

What is Core Space’s prime investment strategy or ethos?

When I was at Goldman, my thesis was those types of [big, public university] markets, but also the best locations. And there were a couple of groups that would build high-rise properties at what we call the bull’s eye — which is equidistant, or walking distance, from the main quad, the main retailer, and the frat houses or social life. If you can find the bull’s eye it’s usually right next to the school bookstore, it’s a great location. So that was the thesis that I had. Core was actually around for almost a decade before I got there, and I met the company founder Marc Lifshin at University of Wisconsin in Madison, which is where one of their first large flagship projects was, and I was immediately inspired. 

I walked into Core’s asset and there was a music room, there was a volleyball court that turned into an ice skating rink, there was a rooftop infinity pool, and they built these penthouse units that were just a different level of design. And I remember walking around with Marc and saying “This is the nicest asset in the country I’ve ever seen, and I’ve been looking at student housing for years,” And he said, “Well, why don’t you come in a week from now. We screwed up on so many different things, let me tell you about all the lessons we learned. We’re an open book about that.” And so, what brought me to Core, and is still in our DNA, is a culture of relentless innovation and self-criticism, where we wanna push the envelope on design, on the user experience, and we wanna be open and honest about how we can continue to get better. And the student housing demographic and the profile of the renter is constantly changing. So it’s a lot of fun if you’re up for that kind of challenge because you’re always chasing and losing your target as the tenant preferences change. 

Not every college student has parents that can afford rents for an asset with an ice skating rink. Are these amenities a trend or the future of student housing? 

We’ve developed a barbell strategy over time, where we have luxury penthouse units, but on the other side of the spectrum, 30 percent to 40 percent of our projects are what are called price sets. At large public universities, there are certain tenants that are pricing sensitive, and some want a penthouse suite. That’s a cool thing to sell, and you’re gonna have people that fill in at that end of the barbell. But some of our projects now are 2,000 beds. We’re obsessed with really well-designed, efficient units that have a price point that’s somewhat commensurate with living on campus, or living a couple of miles away with a little bit more space and less amenities. 

So how do you differ yourself from the competition? 

We’re probably more well known for pushing the envelope and innovating a bit more. Let me give you some examples. Our units are more efficient than something our competitors might design, they’re proprietary designs that really haven’t been seen before. You’ve got Murphy beds that come down from the walls, and we’ve taken some bets that other competitors haven’t. We lease those beds in two months. But conventional wisdom in student housing is that you need bed-bath parity, so every bedroom has to have a bathroom. And we like to challenge ourselves and say, “You know what? Some students, especially in the Florida projects, just want a price point.” And so we ask ourselves: How do we create a great living experience that doesn’t necessarily have all of the same things that our competitors feel like are necessary? 

We are also obsessed with the user experience and also marketing to our students. For example, when we at leased up Knoxville, we partnered with Barstool Sports and [Hall of Fame NFL quarterback] Peyton Manning. And so, we hosted an event bringing Peyton Manning, who’s an alumni of University of Tennessee, together with this really popular podcast on Barstool Sports, and we did kind of a roommate challenge that Peyton and the Barstool team mediated, and it was a huge success. And so other student housing companies aren’t doing that. We own a lot of beds at Clemson University, and in November, we hosted a concert with a top 10 country music singer named Lee Brice in our parking lot. I don’t think any student housing company hosted a full-blown concert before. And then there’s our social media handles. We have a big brand presence in Instagram and one of our videos just hit 12 million views — I don’t understand it at all, but that’s half of all college students in the country, and those type of things differentiate Core in the market.  

Where do you guys source your capital from, and what do your investment partnerships look like?

Most real estate transactions in the operator and developer space are one-off deals, with 60 to 65 percent leverage, where the capital is 5 to 20 percent of the equity, and you find a one-off joint venture partner to be the rest of the equity in the capital stack. And that’s what we’ve done for a long time. We have 17 different institutional capital partners—limited partners right now— in our various joint ventures. But one thing that differentiates us is we started raising closed-end funds, so that’s discretionary development capital. They’re very large discretionary investment funds, and as a company, we’ve invested a lot in fundraising and distribution channels. We have institutional sales fundraisers that have come from Wall Street to help develop more relationships with traditional funds investors, as we see that pocket of capital being a real differentiator for us.  

You’re also involved in the build-to-rent space. What’s the investment strategy behind those assets? 

The build-to-rent space feels a lot like cottage-style student housing products, and it feels ripe for disruption right now, where what’s out there doesn’t really suit the needs of people who actually want to have a feeling of a true community. I think there’s 17 million renters of noninstitutional homes right now. Our approach is the anti-”Truman Show” approach, where it feels a little bit like a movie set when you walk around some of these communities of single-family homes. And we want to try to bring our culture of really creating something that’s bespoke and that speaks to the community, but is not just a one-size-fits-all model. We want to create vibrant communities that feel like a very differentiated type of community, and so that’s the approach that we’re taking to a space that we think is ripe for disruption.

It costs more to do that. How do you guys justify being different and making the single-family or the build-to-rent home a little more unique?

I think some people think that build-to-rent is just for people that have no other options. We call that a rent-by-necessity demographic. But we believe that it’s not just people that can’t afford a house. If you build the right products and the right community, some people want flexibility and convenience, too. And so we are making a bet that some of our demographics, where we’re anywhere from 150 to 400 homes in our communities, where you could have some people that could afford to live in a home, but want the flexibility of a house with zero maintenance hassles. And then there are other homes that are designed really efficiently that have a much lower price point, and everywhere in between. So that’s the way that we’re able to do it. It’s slightly larger projects, which bring down our cost basis, in a belief that some of those units with a barbell strategy are not just renters by need. 

Do you think most Americans want to be renters of homes rather than owners who can tap into the equity of the homeownership world?

For some people, yes. And I think there’s been a traditional wisdom within America that your biggest investment is equity in your house. But it’s a big liquid investment, and there are some people, especially in this Uber generation, where there’s changing preferences, that may want to have the majority of their investments in more liquid assets, like the stock market, and have the ability to move instead of just staying in a job, in the same place, where they have to be in the same house and be stuck in their property, potentially in an economic downturn. Some want to have that flexibility. And I think we believe that it’s not everyone, these are not like absolutes, but there’s a proportion of people, probably a subset of people, that would trade out of the idea of locking in on an investment and having that flexibility. 

But it’s a big addressable market. And so to us, it’s about being obsessed with the way that we design our spaces. For example, a lot of our competitors, especially the homebuilders, have large dining rooms. We don’t think that a lot of our renting demographic, which is generally aging millennials, are going to want a big formal dining room anymore. And we’re happy to make that bet that we can keep a price point lower on a more efficient home that has an open kitchen floor. These are basic things that we do that are a little different than a lot of competitors.  

What’s the best investment advice you’ve received in your career in real estate?

A partner of mine at Goldman Sachs gave me advice that who you’re investing with probably matters the most. Great management teams are worth their weight in gold. And now that I’m over on the operating side, I can see that the culture, the grit, the collaboration, and the integrity of the teams is what usually differentiates investment success from investment failure. 

Brian Pascus can be reached at bpascus@commercialobserver.com