Learning with Lehman

The bank is investing in two JVs to develop new student residences in the north of England.

The traditional image of the British student may be of an impoverished youth eating baked beans and living in squalor, but some real estate investors still think they represent a good chance to make a healthy return.

Global investment bank LehmanBrothers has teamed up with UNITE Group, a provider of student accommodation in the UK, to create a 968-bed student village in the Yorkshire city of Leeds. The chosen site in the city center is near to both the University of Leeds and Leeds Metropolitan University, as well as Leeds College of Music.

The special vehicle set up to develop the project is a joint venture with an initial term of five years. Lehman has invested £3.4 million ($6.1 million; €5.0 million) in cash in the venture; while UNITE has supplied the JV with vacant land worth £3.7 million, and received £0.1 million of cash back. They will hold 49 percent and 51 percent of the joint venture respectively, although each will have equal voting rights and board representation. Senior debt is being provided by Fortis Bank.

The new development will include studio apartments, en-suite studybedrooms arranged in flats, and leisure facilities such as a gym. Construction is being handled by business and construction services company Carillion. When completed, it will be operated by UNITE and let directly to students. The development is expected to be worth £43.2 million, and will have a rent roll of £3.9 million.

The project follows an earlier development in nearby Sheffield, launched in April 2004. Like Leeds, Sheffield has a large student population spread between multiple universities, and has benefited from the regeneration boom that has swept through most of Britain's secondary cities during the last decade.

Lehman and UNITE each invested £4 million for a 50 percent stake in the 1,162-bed Sheffield development, which is known as The Forge. Senior debt for the development was provided by specialist European real estate bank Eurohypo AG. It has just opened to its first residents as students at nearby Sheffield and Sheffield Hallam universities return for the autumn term.

The Leeds development is due for completion before the next academic year begins in August 2006. UNITE and Lehman Brothers are considering teaming up for similar development projects in the future.