These privately financed properties contrast with most existing university-operated housing that is 30 years old or older. Much old housing stock has small, double-occupancy bedrooms, limited storage space for the modern student's computers and paraphernalia, barracks-like bathrooms, little or no privacy, and significant challenges for setting up and using electronic equipment such as computers, music systems and electronic games.

Students are demanding more, and their parents are obliging them.

This preference for single-bedroom housing will soon collide with demand prompted by the demographics of baby boomers' children, specifically the "echo boomer" cadre now just hitting college age. College enrollment is expected to increase over the next 20 years; between 2002 and 2012, enrollments are expected to increase by 13.2%. More high school graduates are going to college. Most plan to attend full time and typically will take five years to finish, not four. Full-time student populations are expected to increase even faster (16%) and those are the most likely students to require housing on or near campus. By 2012, 60% of college students will be women, and the design of dormitories must respect this increase. Parents of all college students will want their children to be within walking distance of campus, will value good security and want management that values relationships with its students.

The proliferation of private student housing has provided a substantial database, allowing industry experts to establish informed guidelines for development, construction and operating costs, as well as appropriate reserves for capital replacement, financing and operations. Again, it is essential that the managers and sponsors of the private transactions know what they are doing.

Bundled Credits
In a debt world where high yields from good quality credits have been hard to come by, several firms are bundling credits from unusual, good quality sources. While the quality of the underlying credits may be high, and sometimes even rated, the securities themselves will not have been publicly registered or individually rated by the agencies, usually because the packages are too small and the costs would be prohibitive.

Ten-year fixed yields should be several hundred basis points above the benchmark Treasury, and they should only be considered if the spread is sufficient for the loss of liquidity. Such credits have recently included the bundling of service contracts such as residential burglar-alarm services, oil-production leases and various forms of debt from private real estate owners and operators.

Apartment Sectors
In the direct real estate area, there are at least two apartment property sectors where the strength of future demand growth is demonstrable, and many of these properties are in geographic areas or markets that the analyst may conclude are underserved. These are areas where the investment opportunities are not yet available in sufficient volume to create targeted publicly traded investment vehicles. Specifically, the investments are in private, market-rate senior housing sector and aforementioned student housing sector, which are both insulated from the single-family home market and the collapse of the mortgage markets. In many geographic areas, these investors may presently be underserved. In the current market, private investments can be found at yields of 7% to 9%, which is about double the current yield on apartment REITs.

The basic senior rental housing demand driver is clear. Between the end of World War II in 1945 and the slowdown in births in about 1964, 76 million Americans were born. They are turning 60 today, about every eight seconds, meaning this group will inevitably be the fastest-growing segment of U.S. demand for 18 years, through 2024, when the last one hits 60. Analysts who study that market will tell you that only about 10% of those seniors who are qualified for independent senior rental housing by age and income will move into such properties, but in many geographic markets there is only enough existing housing to accommodate 3% to 5% of the qualified candidates. Projected five-to-seven-year IRRs in the high teens seem realistic to some observers.

Student housing demand is more "university-specific"-meaning it depends on whether a specific college or university has been growing and whether it is likely to continue doing so.  It also depends on what percentage of its students are full time (and thus much more likely to need local housing), and what percentage are commuting.  You must also ask how many of its students are currently housed in university-owned dorms and what rates are they paying. Parents will generally pay a pretty good premium over what the institution charges to get their children out of off-campus housing and into a safer (non-"Animal House") environment, but probably not pay 30% more. While the private equity analyst may not need to determine each of these factors himself, it is critical to be certain that the sponsors and managers know these university-specific variables. They must also have policies and procedures to show that they can deal with students, attract good tenants and avoid "Animal House" atmospheres that scare parents.

Oil And Gas Trusts
There are also oil and gas trusts, whose assets are based on existing, proven, producing wells. Many investors believe these trusts, structured as alternative investments, provide both attractive yields and a reasonable chance of appreciation, depending on the price of oil and the price of the security at the time of the investment. Investors who bought good ones two or three years ago are doing very well indeed. Whether there are more "legs" in oil prices as they approach $150 per barrel is something that each analyst needs to consider for himself.