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What Blackstone’s American Campus Communities deal means for the student housing sector

The New York manager’s $13bn purchase of the development-focused REIT takes the niche sector fully private in the US. Reaction to that is mixed.

When Blackstone acquired American Campus Communities, the US student housing real estate investment trust, it became the largest owner of student accommodation overnight. The deal, valued at $12.8 billion, typified the sorts of scale at which the New York-based mega manager is doing its real estate business these days. Every such deal is interpreted as a sector conviction bet.

There will be a ripple effect of the mammoth deal in the student housing sector. Blackstone has privatized the biggest owner of student housing in the US by a significant margin. American Campus owned almost 112,000 beds in 166 properties at the end of last year, according to research firm Student Housing Business. The second largest owner, Chicago-based real estate manager Harrison Street, owned almost 70,000 beds in 121 properties by comparison.

Blackstone’s co-head of Americas acquisitions in the real estate group Jacob Werner told PERE the deal adds to the approximately 30,000 beds the manager already owns in the US.  “Student housing is an asset class we really like,” Werner said.

“It all starts with the supply and demand of housing,” he explained.

“Our intention is to deploy our long duration capital to support additional development,” Werner said. “We want to invest in the existing assets and build much needed new student housing supply.”

Despite becoming the largest owner of student housing overnight, Blackstone sees a continued opportunity for growth in the portfolio. Total student housing in the US can today cater for about 40 percent of the enrollment at the country’s educational facilities, Werner said. Indeed, shortfall on campuses of the top 50 schools in the US ranges from about 10,000 to more than 33,000 beds, depending on the school, according to data from New York-based mortgage broker Berkadia.

Part of the plan for Blackstone’s acquisition is to leverage American Campus’ development capabilities and continue adding to the already sizable portfolio.

Blackstone is now also able to target both sides of the student housing market: on-campus and off-campus housing, Werner said. The majority of its existing portfolio is in off-campus housing, the more common of the two types in terms of institutional ownership. American Campus’s portfolio was one of only three of the top 10 owners with a presence in on-campus housing.

Provident Resources Group, a national non-profit, is the tenth largest owner of student housing and the only top-ten owner with a majority of on-campus housing in its portfolio. The only other manager with on-campus assets in its portfolio is Greystar, the Charleston-based residential specialist. But it has only around 21 percent of its beds on campus, versus 37 percent of American Campus’s assets, per Student Housing Business.

Last REIT standing

Blackstone’s purchase of American Campus makes student housing a fully privately held asset class in the US. ACC was the last public REIT dedicated to the sector to be taken private, following Campus Crest Communities’ privatization by Harrison Street in 2015 and EdR by Greystar in 2018. The latter deal included Blackstone purchasing 30 percent via BREIT, its non-listed retail capital vehicle. BREIT has provided the majority of capital for the American Campus purchase too, with Blackstone Property Partners, the firm’s open-ended institutional vehicle, also providing capital to the deal.

The pandemic has accelerated private equity’s interest in the asset class, Alan Peterson, an analyst at research and advisory firm Green Street, told PERE, citing performance resilience through cycles as a key factor. Blackstone’s own activity has been building to this larger transaction. The firm previously acquired iQ in 2020, the largest UK owner operator in the space, and last year formed a $784 million joint venture with operator Landmark Properties. That JV with Landmark was also seeded with capital from BREIT.

The privatization of the asset class has implications. Public REITs are often regarded as more attractive vehicles for institutional investors because of their lower fee structures and greater transparency, Green Street contended in a report about the transaction. The consequent lack of disclosure about the operations of American Campus could result in caution among institutions eyeing increases to allocations, the report said. Consolidation is likely to benefit operators of scale, of which Blackstone has become the largest, it added.

No rival worries

Blackstone’s closest competitor, Harrison Street, which owned just under 70,000 beds at the end of last year, is not worried about the acquisition. Harrison Street has a venture already in place with American Campus and expects that to continue, co-founder and CEO Christopher Merrill told PERE. As one of the earliest movers in private student housing investors, Blackstone’s acquisition only underlines the institutional appeal of the once-niche sector.

“Investors look at the asset class with a view of, ‘if I want to invest in a resilient asset class that offers downside protection plus the ability to reprice in an inflationary environment, the student housing segment is one that offers these characteristics,’” Merrill said.

He said that different investors are attracted to student housing, with sovereign wealth funds being some of the prominent active in the sector. Abu Dhabi Investment Authority’s longstanding relationship with Landmark is a good example. Merrill notes the differing strategies and abundance of schools, both public and private, leaves room for many managers to succeed.

“It’s nothing but good news for the overall industry and will further highlight those groups that have a deep expertise in the space,” he said.