Blackstone sells UK student housing business

According to sources familiar with the situation, the New York real estate and private equity giant is in line to bank a £100m profit from the sale of its Nido Student Living accommodation business for its Blackstone Real Estate Partners fund series.

The Blackstone Group has exchanged contracts to sell its UK student housing business, Nido Student Living, in one of the largest ever corporate transactions in the sector.

The New York real estate and private equity giant is to sell the London-based business to Round Hill Capital, a real estate and energy investment management firm based in the city, in a deal valued at  £415 million (€511.3 million; $676.2 million).

The equity investment by Round Hill was supported by £266 million of senior debt from M&G Investments, the fund management arm of insurer Prudential, and £80 million of mezzanine finance from Och-Ziff Capital Management – demonstrative of an increasingly varied lending market for prime UK property.

PERE understands the exit by Blackstone will reflect a profit of approximately £100 million for a number of the firm’s Blackstone Real Estate Partners (BREP) global opportunity real estate funds.

The exit, which is expected to crystalise at the end of the month, brings to close a somewhat protracted sale process which was understood to have stretched for more than 6 months as Round Hill Capital arranged it’s financing. At press time, it was unclear which lenders backed the investment although a number of lenders had previously engaged but walked away including AIG, the US insurance giant, which would have been making its UK real estate financing debut.

The sale also brings to a close Blackstone’s seven-year UK student housing project, building the Nido locations and brand from scratch. Over that period, the firm acquired three sites, in Kings Cross, Spitalfields, and in Notting Hill, and has converted their use to high-end student accommodation.

Originally engaging with a London university with a view to leasing it to campuses, Blackstone ultimately chose instead to create an operating business and rent out its 2,526 beds directly.

Room prices charged to students are between £245 per week to £350 per week, depending on the location and room specification. Those prices are understood to represent a premium on the average weekly rent per room that was on offer from the university and that has helped Blackstone to generate an opportunistic-calibre return for its investors, it is believed.

Despite the exit by Blackstone, one source familiar with the transaction and the firm said Blackstone still has an appetite for the student accommodation sector in Europe in general. That is evidenced by its decision to hold onto further development sites in London and in Barcelona. Furthermore, it is understood that the firm would consider engaging in future joint ventures with Nido.