I'm building a Royal Estate - (merged with "what kind of rooms are in yours?")

I've changed the lot type of the dorms to residential. I have student apartments there instead. That way my students can stay there between terms. I play rotationally so its nice to just leave them there when I rotate to another household. So far it's working fine.

ETA: I did add a second floor to the lot. I didn't try adding more but I would imagine you can have 4 floors like any other lot (including penthouses).