Global investors and opportunistic funds have been moving into UK student accommodation as core looks ‘fully priced’Goldman Sachs Real Estate Principal Investment Area (REPIA) has found a way to get exposure to the UK student accommodation sector. Looking for distressed assets, the firm bought a portfolio of 21 assets last month from the remnants of a collapsed investor called Opal Property Group, giving it student digs is major cities such as London, Manchester, Leeds and Liverpool. REPIA went into the transaction with Greystar Real Estate Partners, the largest US operator of student accommodation in the US, following a partnership the pair struck up in America earlier this year.
What made this transaction particularly noteworthy is it became the third major investment in the UK student accommodation sector in the past 12 months. “There is a gravitational pull in the sector,” as London-based Jonathan Harris of Macquarie Capital put it, as yet more significant capital gets chaperoned into the niche sector.
Some real estate professionals believe that Singapore’s GIC Private was among the earliest, if not the earliest, of global investors to recognize opportunity in the UK student accommodation sector. In 2005, the sovereign wealth fund formed a joint venture with UK operator UNITE to create the Unite Capital Cities fund, which manages several hundred million pounds worth of assets. That fund got extended last year at roughly the same time as the pair structured a different partnership called the London Student Accommodation Joint Venture (LSAV), into which they announced plans to tip £330 million (€407.6 million; $536.06 million), including debt, to invest in buildings. The idea was to structure LSAV as a 50:50 joint venture, which has the right of first refusal on UNITE’s London developments.
GIC announced its latest initiatives last September and, that very same month, Dutch pension administrator PGGM announced it had purchased a stake in the UK’s University Partnerships Programme, another developer and operator of student accommodation. That transaction was different to the GIC and Goldman Sachs examples because PGGM took a 60 percent stake in the £1.4 billion operator from Barclays Infrastructure Funds Management for an undisclosed amount.
What PGGM and GIC like in particular is the stable long-term cash flow that student accommodation blocks throw off. In addition, by buying a stake in a business, PGGM didn’t have to wait around for a build-up phase.
Macquarie’s Harris, who advised on both the PGGM and Goldman/Greystar transactions, said the sector had gathered pace partly because core property was believed to be “fairly fully priced.” As a result, certain investors were examining alternative sectors that also provided a quality of income sharing core property characteristics.
Of course, Harris pointed out that some investors have vast experience in this niche sector gathered in markets such as the US and Australia, where student accommodation has become very developed. The UK is not yet at that stage and, when coupled with the fact that some investors seem able to access properties at good risk-adjusted returns, it is gaining much more attention.
According to various reports, demand for higher education has never been stronger, which explains the trend of attracting capital. The number of full-time students in UK higher education grew by 540,000 between 1999 and 2012, an increase of 46 percent.