The real estate arm of British Columbia’s public sector pension investor began working with CA in March 2017 and to date has committed $1.6 billion to various investment vehicles managed by the Chicago-based residential specialist. Previously, QuadReal had a preferred debt position with the platform’s operating company but has now converted the debt position to equity for this transaction.
“With debt it’s just a fixed coupon, so we were comfortable with our security, but we felt there was more upside in converting to equity,” Jonathan Dubois-Phillips, president of international real estate at QuadReal, told PERE. “We think we’re going to see a very good run in this space, and we want to participate in that upside.”
In addition to the debt conversion, the transaction includes additional equity capital from QuadReal, although the group declined to disclose specifics of the deal. With the ownership stake, the investor will have exposure to all of CA’s investment vehicles, which target build-to-core development and value-add acquisitions of existing properties. Dubois-Phillips said his team is targeting returns in the low to mid-teens.
For its part, CA plans to use the cash injection to build its fund management platform and pursue opportunities brought on by the pandemic.
Despite early uncertainties about how covid-19 would impact American colleges and the student housing market, Nishant Bakaya, CA’s chief investment officer, said the sector has held up well. Overall, the platform’s properties were 93 percent leased before the start of the school year, he said. The firm’s core portfolio is closer to 95 percent leased and overall rent collections have been roughly 98 percent, with year-over-year rent growth remaining flat.
One CA property near North Carolina State University in Raleigh was 81 percent pre-leased as the school was preparing to start the fall semester with some in-person classes. An uptick in covid-19 cases caused it to change course and shift fully online on August 20. But rather than heading home for the semester, many on-campus students opted for private apartments instead. Over the following four days, CA signed 46 leases, bumping occupancy to 95 percent. By the end of the month, it was 98 percent leased. “What’s come through is undergraduates and graduate students want to preserve the college experience,” Bakaya said. “They want to go back to universities regardless of whether classes are being taught on campus or not.”
Despite the strong performance within CA’s portfolio, Bakaya expects there to be distressed buying opportunities from owners that were not as well equipped to operate during the pandemic. Specifically, he credits a rapid adoption of technology and a robust management team with enabling the company to continue leasing even under strict social distancing guidelines. Those without the same systems in place have not fared as well, he said.
Similarly, Dubois-Phillips anticipates opportunities to partner with universities that own land and need more housing but are short on cash because of covid-19. Beyond those special situations, he said QuadReal has identified about 100 promising student markets and thus far has only invested in 20 of them, leaving ample room for growth.
“We have focused on the largest schools with strong funding and increasing enrollments, so if we do see a shaking out of some schools, we don’t think that will affect us,” he said. “It might enhance our offering as people think more carefully about where they live at their chosen school.”