Greystar eyes more student gems after Opal acquisition

Greystar Real Estate Partners, the leading US residential investment group that burst on to the UK student housing scene this year with a £310m portfolio acquisition, plans to triple its holdings in the sector in 2014. “I don’t think it is outside the realm of possibility for us to have a £1bn-plus portfolio this time next year,” says Brett Lashley, Greystar’s UK managing director. “I’d be disappointed if that wasn’t the case.”

Greystar, the largest owner-operator of apartments in the US, entered the UK with the purchase of 21 student housing blocks for £310m from Opal Property Group, one of the UK’s largest student housing providers  until the failure to refinance nearly £1bn of debt forced it into administration last March. Opal’s collapse caused consternation in the market and is thought to have influenced a rush of redemption requests by retail investors in the Brandeaux Student Accommodation Fund, and its suspension.

Yet overseas capital flows into the sector have not wavered, led by China’s Gingko Tree Investments and Greystar (see table). “We like the asset class here now because there is an opportunity to acquire scale very quickly,” says Lashley. “A fair amount of assets are for sale, not because they have fundamental problems – generally they are performing quite well – but because of  capital structure issues at the corporate level.”

But he adds: “We’re an experienced operator and if we purchase the assets well, focus aggressively on the operations and provide our residents with an excellent experience, we’ll do okay.” According to CBRE, £1.6bn has been invested in UK student housing so far this year and the sector produced 9.95% total returns in the 12 months to September 2013, beating IPD total returns on offices, industrial and shops over the same period.

Investment is likely to top £2bn for the second year in a row, given negotiations on two portfolios: Australian group Campus Living Villages is preferred bidder for £245m-worth of former Opal assets, while a £190m UNITE/Oasis Capital Bank portfolio is reportedly under offer to Greystar.

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Chunky investment deals have character-ised the market since early 2012, when Dutch pension fund PGGM bought 60% of Universities Partnerships Programme and Round Hill the London-based Nido portfolio.

Final Opal portfolio on the block

The break-up of Opal, meanwhile, will con-tinue into 2014, with one final portfolio for sale. Lashley confirms that Greystar will be bidding once again. “We’re well prepared and we know the assets,” he says. For Greystar and other overseas investors, part of the attraction is that the UK is one of the most established student housing markets outside the US. “For an institution with capital it is an interesting time to get involved here,” says Lashley. “Greystar has been looking for a handful of years to diversify outside the US.

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The UK market is liquid and its legal system is similar to the US, so it was easier to get our arms around understanding the market.” Underlying the wave of investment is an influx of overseas students. This was a key factor in the near £1bn of debt and equity Legal & General Property has pumped into the sector over two years, making it one of the biggest UK institutional players in student housing. As research director Rob Martin says, the sector has been “a source of enormous growth for us”.

But he points out that L&G’s exposure is via long leases with universities, matching its long-income requirements, rather than the conventional direct-let or nomination-agreement model. “We look very carefully at the individual [universities] with which we’re transacting, to get a real understanding of their plans for investment and their competitive positioning in the market,” says Martin.

“I have a strong conviction that the sector will be a less easy place for universities in the next decade than it has been in the past 10 years, and there will be some relative losers. You could entirely map that process on to student accommodation operators as well.” But L&G is confident enough about student numbers to consider the “very interesting” yield profile of direct let accommodation in future. Others are more bullish still. CBRE predicts that the demand for English-taught degrees will translate into a 15-20% rise in the number of international students in the UK over the next five years.