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Starwood enters UK student housing with £120m JV

The Greenwich, Connecticut-based private investment firm has made its debut in the UK student accommodation market after landing a 1,595-bed portfolio located in regional university cities such as Cambridge, Newcastle and Edinburgh. 

Starwood Capital Group, the Greenwich, Connecticut-based private investment firm, and Round Hill Capital, the London-based real estate investment management firm, have acquired a portfolio of six purpose-built student accommodation assets across the UK for around £120 million ($147 million; €138 million).

The six-asset portfolio comprises The Haymarket, in Edinburgh, Chestnut House in Cambridge, The Walls in Southampton, St James House in Glasgow and Union Square and Stepney Yard, both in Newcastle. All six properties are located centrally within their respective cities and in total the portfolio comprises 1,595 beds. The high-specification apartments are mainly large studios with ensuite bathrooms and premium-quality communal areas.

As part of the transaction, the partnership has also entered into a forward funding agreement for the acquisition of a development scheme in Newcastle, which is expected to be delivered in time for the 2018-19 academic year.

The deal marks Starwood’s first foray into the UK student housing market, though it has been a major player in the sector in the US since 2015 when it acquired two portfolios comprising around 7,000 beds on behalf of its tenth opportunistic globally-focused vehicle, Starwood Global Opportunity Fund X.

Round Hill, meanwhile, has been a long-time investor in student housing having acquired, built up and managed over 2,700 student housing beds.

Zsolt Kohalmi, head of European acquisitions at Starwood, said he believed that the UK will continue to be one of the top educational destinations for international students. “Starwood Capital has an established platform of student housing in the US, with 6,855 beds under management, and based on our strong performance and track record, we are keen on expanding our footprint in this sector in the UK,” said Kohalmi. “We believe that student housing offers the potential for compelling risk-adjusted returns – based on a history of producing robust rental growth and maintaining high occupancy even amidst the last economic crisis – and we look forward to building on this transaction to establish a sizeable student housing platform in the UK,” he added.

The partnership said it would add value to the portfolio through “active, hands-on management” via Round Hill’s well-established Nido Collection brand and operational platform for student accommodations. The firm acquired the Nido business alongside a portfolio of three London assets from New York private equity real estate giant The Blackstone Group in 2012 in a deal valued at £415 million. In 2015, Roundhill sold the portfolio to Greystar Real Estate Advisers for £600 million.

“The demand for higher education in the UK is continuing to rise but the student housing market still suffers from structural supply constraints for high-specification properties in key university cities. Taken together with the sector’s growing and stable cash flows and our proven Nido Collection brand and operating expertise, this acquisition provides a compelling investment opportunity,” said Michael Bickford, founder and chief executive officer of Round Hill.