Aviva backs ‘defensive’ UK student housing with £236m loan

Alternative asset classes with an operational nature help to build resilience amid uncertainty, Gregor Bamert, the firm's head of real estate finance, tells Real Estate Capital.

Aviva Investors, the asset management arm of UK insurer Aviva, has written a £236 million (€259 million) loan to finance the acquisition of a portfolio of student accommodation assets in the UK.

The 10-year fixed-rate loan was provided to an undisclosed global institutional investor to fund a £600 million student housing portfolio. The facility has a conservative loan-to-value of 41 percent. The portfolio includes approximately 3,200 student beds across eight properties in key regional cities across the UK, such as Manchester, Glasgow and Birmingham.

The deal, understood to be one of the largest acquisition financings in the UK real estate finance market this year, comes at a time of decreasing commercial real estate investment volumes in the UK, down by 23 percent to £12 billion year-on-year, according to consultancy firm Cushman & Wakefield.

A slowing UK economy and a fast-approaching Brexit deadline has made investors with a heavy exposure to the market more cautious, Cushman & Wakefield said. Meanwhile, alternative property types, such as student accommodation or hotels, now account for 37 percent of year-to-date investment volumes into UK commercial real estate, making it the most active sector in the market.

“Alternative assets that carry an operational requirement can often possess a high level of resilience and defensive qualities in uncertain markets. Student accommodation is a good example,” Gregor Bamert, Aviva Investors’ head of real estate finance, told Real Estate Capital.

Bamert explained that multiple-occupancy accommodation found in assets such as purpose-built student accommodation allows risk to be spread further across multiple tenants. This could compare favourably to a traditional property let to a single tenant. “If that tenant struggles – or is perceived to struggle – the value of the underlying property can materially change,” Bamert said. “Assets such as those found in the student accommodation sector can be a great diversifier.”