Four years ago, Gaffen discovered an opportunity in student housing near large campuses like Purdue University, where apartments in walk-to locations were in short supply. A little research confirmed that with the so-called echo boom heading off to college in record numbers, demand for student housing was growing faster than many universities could accommodate, she said.
By acting quickly on real estate opportunities in college towns, Northbrook-based Prime Property Investors Ltd. has created a thriving niche business. The 14-year-old firm's revenue hit $21.7 million in 2006, up eightfold from 2003, landing it on the Inc. 500 list of fastest-growing private companies.
As Gaffen and co-Chief Executive Michael Zaransky discovered, it pays to keep your eyes open for new business ideas because your big break might be right in front of your nose. Even seemingly narrow concepts can pay off in wider possibilities down the road.
"You have to be willing to evaluate opportunities and reinvent," Gaffen said.
The biggest breakthroughs often seem obvious in retrospect, said James Schrager, clinical professor of entrepreneurship at the University of Chicago Graduate School of Business.
"One of the things we teach is, make observations ... then think about how you can make them make sense," Schrager said.
If you discover a new niche, act on it, he said. "A lot of things can be very quickly picked up by others. Anything good after a while is going to be notable."
As Prime Property has grown -- its student-housing real estate business has 1,544 beds in 56 buildings worth $60 million -- finding suitable properties and dealing with the turnover in tenants every August have been larger challenges than raising capital. Besides the founders' contributions, the firm gets most of its investment capital from high-net-worth individuals and financial institutions, Gaffen said.
Like Prime Property, Chicago-based real estate services firm Scion Group also sees promise in the burgeoning college housing market. The 7-year-old firm is managing Automatic Lofts, a new 485-bed building across the Eisenhower Expressway from the University of Illinois at Chicago, which it purchased through a joint venture with ASB Capital Management LLC for about $54 million six weeks ago.
ASB Capital Management, a pension fund adviser based in Bethesda, Md., with more than $11 billion under management, sought out Scion Group for its expertise in student housing, said Keyvan Arjomand, ASB senior vice president. In the past 18 months, ASB has invested more than $150 million in projects managed by Scion, Arjomand said.
The capital infusion has given Scion a huge boost and allowed it to move away from third-party management to an owner-operator model, focusing on properties it has acquired with ASB, said CEO Rob Bronstein.
"Before, we were buying $10 million to $15 million. Now we're buying 10 times that," Bronstein said. Scion is targeting revenue of about $32 million this year. "We've tripled the size of our business," he said.
To keep up with demand, the company also has tripled its workforce to 75 full-time and 45 part-time employees, many working on site at the properties. Even so, Scion has to be picky about its projects.
"We are limited far more by time than anything," said Bronstein, a former commercial real estate broker with Equis Corp., who founded Scion in 2000 when he noticed growing interest among urban commuter colleges in providing student housing.
The firm is in its fourth year of a five-year contract managing University Center, the 18-story superdorm at State Street and Congress Parkway. It recently pulled out of Loft-Right, a 580-bed student apartment complex near DePaul University's Lincoln Park campus that it had been managing since before it opened in June 2006. Several students had complained about sound problems, drafty windows and other issues.
Bronstein said it was difficult to respond quickly to the problems because Scion didn't own the building.
"This is a perfect example of why I don't want to be in third-party management. You can't make things right when you need to, and you get blamed when something goes wrong," he said.
By purchasing buildings with ASB, Bronstein said, Scion can respond immediately when problems arise.
"A building with 500 students is a complicated business," he said. "Literally every day, decisions need to be made by the manager and owner."
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source: chicagotribune.com
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