Why Kinetic Capital believes the PBSA sector will grow despite covid-19

The UK-based purpose-built student accommodation lender says the pandemic will have just a temporary impact on the sector’s prospects.

Despite the disruption caused by the coronavirus pandemic on university terms, Kinetic Capital remains bullish about the prospects for purpose-built student accommodation.

The UK-based specialist PBSA lender was set up in July as the first ever debt provider dedicated solely to the market.

Grant: ‘The pandemic crisis will have just a temporary impact on the PBSA sector’

Steve Grant, Kinetic’s co-founder and chief executive, said that, despite the short-term headwinds brought by covid-19, including a greater proportion of students deferring the start of their degrees and the impact of travel restrictions on international students, the sector has so far weathered the unprecedented challenges presented by the pandemic. “I don’t see a significant occupational void or lack of rental growth in the PBSA sector,” he told Real Estate Capital.

Q3 results from UK-based student accommodation developer and manager Unite Group showed a modest hit from the pandemic, with 88 percent of beds let across its portfolio, compared with 98 percent let on the same period last year.

Grant believes covid-19’s impact will be temporary, due partly to the sustained appetite from foreign and domestic students to study in the UK. “Data from the UK’s Universities and Colleges Admissions Service showed a 2 percent annual increase in overall applicant numbers for UK Universities in June 2020,” Grant said. “This demand will support the sector’s performance going forward.”

He added that the current crisis is creating a tougher jobs market, meaning a higher proportion of young people are likely to turn to academia to boost their employability. UK demographic trends, he continued, will support the sector’s growth going forward. “The number of UK 18-year-old students is expected to be around 25 percent higher by 2030, which means a growing pool of potential university applicants.”

Kinetic Capital was co-founded by Grant and Nick Porter, two UK PBSA specialists, with an initial £100 million (€112.44 million) capital commitment. Grant is the former chief executive of developer Global Student Accommodation Group while Porter, the lender’s chairman, is also chairman and founder of GSA. Kinetic recently appointed Nick Cussen as its new head of business development who, alongside Grant and director of credit, Ben Lynch, complete the senior leadership team.

After two decades working on the equity side of the student housing business, Grant and Porter saw the opportunity for a sector-specific lending business. Although Kinetic was not launched specifically in response to covid-19, Grant explained the liquidity shortage brought about by the crisis increased the need for finance for PBSA schemes.

“Covid-19 has increased the number of financing opportunities, as many of the larger UK and international banks have either stopped or significantly reduced their lending activity to the sector, and provided typically, very conservative lending terms.”

Kinetic will initially focus on the UK and Irish PBSA markets but plans to later expand internationally. It will offer whole loans, mezzanine debt, bridging finance and preferred equity, lending against development or investment properties, with loan sizes of £10 million to £50 million, and more in cases. The firm is willing to offer up to 75 percent of the value of a development project and 80 percent of an investment property.

“We are looking at a number of development finance opportunities as we are particularly comfortable in the construction space, having delivered many PBSA developments ourselves over the past decades,” Grant said. “There is also a particularly acute shortfall of supply in this area and we are looking to help fill this gap.”

About five months after its foundation, Kinetic is due to close its first financing deals in the UK, Grant said. “These projects will account for over half of the initial £100 million seed capital secured and will be finalised shortly.”