Greystar expands US student housing footprint in $4.6bn take-private

The deal also sees Blackstone’s non-traded REIT’s student housing debut in a $1.2bn transaction.

Bob Faith: Greystar founder

Greystar Real Estate Partners is expanding its student housing platform in the US through a take-private of EdR valued at $4.6 billion, according to a Monday announcement.

Charleston, South Carolina-based Greystar – which entered student housing in 2008 but did not have a dedicated vehicle for the strategy – is buying Memphis, Tennessee-based EdR in an all-cash deal. The seller, which is the second-largest US student housing real estate investment trust, manages 42,300 beds serving 50 universities in 25 states, according to its website.

Greystar, which manages about $6 billion in student housing and $26 billion overall, is buying the REIT through its newly-established Greystar Student Housing Growth and Income Fund. In Europe, the firm is already the largest student housing operator in Spain and the third-largest in the UK.

Meanwhile, stateside, where the firm did some student housing development in conjunction with its multifamily platform, the business “wasn’t a pure-play initiative for us,” Greystar founder Bob Faith told PERE.

“This was the year that we recognized that we needed an investment vehicle that focused on student housing to address the student housing market in the US at scale the way we would like to,” he said, declining to comment on fundraising.

As part of the deal, Blackstone’s non-traded REIT, Blackstone Real Estate Income Trust, is making its student housing debut, buying a 95 percent stake in a 10,500-bed EdR portfolio for $1.2 billion. Greystar has a 5 percent stake in the joint venture and will manage the properties. That 20-asset portfolio is 97 percent occupied, according to a Monday statement.

Blackstone could not be reached for comment.

Greystar’s deal rationale

Through the EdR take-private, Greystar becomes the second-largest student housing owner in the US and seeds Greystar Student Housing Growth and Income Fund, a vehicle that is similar to Greystar’s core-plus fund, Greystar Growth and Income Fund.

The firm launched that core-plus fund in January 2017 and raised $2.3 billion in its initial close in July from Dutch pension fund managers APG and PGGM, Singaporean sovereign wealth fund GIC, and Ivanhoé Cambridge, the real estate subsidiary of Caisse de dépôt et placement du Québec, PERE previously reported. Greystar is targeting returns of 10-12 percent gross, with yearly income returns of 5-6 percent, for the fund.

Greystar Student Housing Growth and Income Fund has a similar investor base of foreign and domestic pension funds, sovereign wealth funds and other institutional investors, largely groups that have invested in Greystar’s other products.

To seed its first core-plus fund last year, Greystar bought New York-listed Monogram Residential Trust in a $4.4 billion deal, which added almost 14,000 units to its core-plus fund, PERE previously reported.

“With Monogram, the focus was the assets – it was an irreplaceable portfolio of assets that would be hard to build one-by-one,” Faith said. “EdR is an opportunity not just to have an amazing portfolio of on- and off-campus assets, but to incorporate those university relationships that EdR has cultivated over the last 20 years… Here, we’re excited about the assets, but we’re also excited about the team.”

EdR was trading at a 4 percent discount to Green Street Advisors’ estimate of net asset value, the advisory firm wrote in a research report last week.

“When you have REITs that are trading at big discounts to NAV, that can make a compelling acquisition opportunity,” Faith said. “If we were trying to buy assets of this quality one-by-one or even smaller portfolios, we firmly believe you’d have to pay a lot more to do that.”

Greystar also takes over EdR’s pipeline, which is valued at about $1 billion, he added.

“Today, the biggest opportunity we see is in developing properties either in partnership with the universities or very close to campus,” he said, noting that acquisitions were not a primary focus. “We think there’s easily an opportunity to continue a pipeline underway of that scale going forward, with several hundred million dollars of development every year at least, hopefully more.”

The deal is expected to close in the second half of 2018.