Posted: Apr 17, 2011 at 5:55 AM [Today]

Yet another sign that Ann Arbor’s student housing market is changing comes from an early leader among the many recent shifts here: Zaragon Place.

The 66-unit apartment building on East University Avenue replaced the former Anberay Apartments less than a block from the University of Michigan campus and the entrance to the Diag. It’s been 100 percent leased since it opened in 2009, and it’s the model for a second similar building on the west edge of campus that’s now under construction.

Now the building is listed for sale with a national student housing brokerage group, a move that developer Rick Perlman says reflects a heated investment market that wants a part of Ann Arbor.

“We’re testing the waters,” Perlman said of the listing. “We’re entertaining a possible recapitalization of the ownership entity.”

The listing includes a confidentiality agreement that potential investors need to sign before they can get details on the income stream and costs associated with the property.

And it also states no asking price, though it’s assessed at $9.2 million. While that figure gives it an estimated market value of $18.4 million, some real estate experts predict an open-market value of the building to be closer to $30 million.

Bringing in investors would add value for Perlman and his Chicago-based Zaragon Inc., which he believes will end up with his company maintaining a portion of the ownership and managing it.

“It’s a very good time for student housing,” Perlman said. “Especially high-end student housing. We want to see what the asset is worth.”

The listing, he said, shows how much traction the student housing market is gaining in the national investment world, which struggled over the past few years amid the recession and fading sectors – like the office and hotel markets.

However, student housing is emerging as a leading investment category – particularly among key properties on the edges of campus, where the barriers to entry remain high and the market for the “captive audience” of students who want new construction also is high.

“There’s a lot of money chasing deals,” Perlman said, in select markets like Ann Arbor. That’s also evidenced by the recent financing deal for 601 Forest, another major project next to campus at the corner of South University and South Forest.

There are two types of active properties: Prime, stabilized properties, like Zaragon Place, which attracts institutional investors and real estate investment trusts. Distressed properties — some of which are headed back to lenders — also offer opportunities to bargain shoppers.

According to a report from ARA Student Housing Group, based in Austin, Texas: “Student housing continues to outperform other asset classes due to strong long- term fundamentals. Based on U.S. Department of Education projections, college enrollment is expected to rise 10% between 2008 and 2017 to over 20 million students. As a result, investors continue to flock to the space in search of higher yield and strong market performance.”

Ground-up developments are slower to recover, but the activity happening now in Ann Arbor signals that rebound, too.

Perlman says the new projects aren’t saturating the Ann Arbor market yet: “We think the demand is there. … We started a trend which has done very well.”

And, he adds, the listing of Zaragon Place should end up showing that demand is deep on the investment end, too.

Yet while this project shows the best of the market, there are still concerns in Ann Arbor about how some of the student housing changes will affect the city: Most affected, most people say, will be the owners of the converted houses and small apartment buildings just outside of the core campus area.

Those properties stand to lose some value as the balance of student tenants shift inward to the high-end and new properties, leaving more supply of the older properties closer to campus.

On the development end, however, Perlman says there’s room for more well-done student projects in Ann Arbor.

In fact, he says he’s still looking for more projects in town.

“I’d love to be doing more deals in Ann Arbor,” he said. “We’re looking for more opportunities.”