Student accommodation, once an ‘alternative’ or ‘specialist’ asset class, is evolving into a mainstream investment, attracting a variety of global institutional investors. More data and the sheer volume of deals paint a similar picture of real estate investors’ growing desire to gain exposure to student accommodation strategies and capabilities.
This can be through debt or equity investment, indirect exposure via joint ventures, private fund vehicles and REITs or the expansion and maturity of operating platforms.
As experience and expertise grow, operators are striving to maximise value. This brings fresh ideas and opportunities, such as expansion into lower-tier markets and strategies to invest in purpose-built student accommodation (PBSA) alongside co-living, or the grouping of BTR, retirement living, co-living and serviced apartments within a single investment portfolio.
Investors have also become more sophisticated, seeking greater diversity, different risk profiles and bespoke investment opportunities.
Based on our recent experience, some specific issues are likely to indirectly influence those investing in student accommodation. To start with, a specialist operating partner is key. It is essential to have clarity on the bespoke services required, who will provide them and for what duration. Tied to this is how to ensure strong alignment between the fund and operational management. The operator may simply be looking for an exit for assets it has developed, rather than a long-term asset management role.
Conflict management is a key concern for investors. For instance, where the operator is providing the fund with multiple service lines from its wider business, specialist non-executive directors are often appointed to an operator’s board, to ensure independent oversight and to augment the role of the fund’s advisory committee.
Operators can face challenges in demonstrating the strength of the pipeline for niche assets, which may result in the fund having to buy assets on a forward-funding or forward-commitment basis.
While closed-ended, fixed-life funds are most prevalent for sector-specific real estate investment strategies, hybrid and open-ended structures often exist in this sector.
Student accommodation is in rude health and a compelling asset class for future investment. The UK is second only to the US in terms of market size, with UK PBSA valued at more than £50bn, according to a May 2019 Knight Frank report. University applications from overseas students increased by 6% for 2019-20 entry and overseas investment is expected to increase.
Louisa Cobbe is a partner and Chris Ormond an associate director at Bryan Cave Leighton Paisner