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Investing in Student Housing - Beyond The Stay Podcast

Guest experts

  • Sarah Canning - Co-founder The Property Marketing Strategists they work with clients (developers, investors, operators) to develop their marketing strategy. Sarah has worked in property for almost 20 years, and 13 of those years has been specifically in Student Accommodations

  • Martyn Roe - Managing Director at Blytheswood Consultancy - specialist PBSA advisory company providing asset management, development management and investment management services to a variety of institutional and private equity clients across the sector. Martyn has been involved in this company for the past 13 years and has more than 25 years in the student accommodation sector, having been one of the original directors at Unite.

  • Marcus Roberts - Director at Savills in Operational Capital Markets division. Marcus has been Leading the growth of Savills Operational Capital Markets platform across Europe. Focusing on the ‘Operational Residential’ space including Student Accommodation, Co-Living, Multi Family, Single Family, Senior Living and Healthcare on a pan-European basis. Marcus brings a wealth of experience (20 years) in the student housing sector.

  • Philip Hillman - Philip has been involved in student housing since the early 90s. Currently he is a consultant at JLL, as well as a Non Exec at Staykeepers and SLE Global.

In this episode, we dive into:

  1. State of PBSA investment market in Europe
  2. Current state of UK PBSA market on transactional side
  3. EU PBSA market recovery
  4. Debt Financing

 

About the Beyond the Stay Podcast

We explore all things build to rent, student accommodation and the private rental sector. From overcoming challenges, to bettering the industry and future predictions with leading guest experts.

Full Transcript

[00:00:54] Philip Hillman: I'd like to start by asking you the team who are here today to introduce themselves briefly, and perhaps in the first instance, Martyn, if you could just tell us about yourself.

[00:01:05] Martyn Roe: My name is Martyn Roe I'm the managing director of a company called Blytheswood consultancy, which is a specialist PBSA advisory company, providing asset management, development management, and investment management services to a variety of institutional and private equity clients across the sector.

[00:01:27] Martyn Roe: I've been doing this for the past 13 years and I've been involved in student accommodation for almost 25 years. I was one of the original directors of the Unite group quite some time ago.

[00:01:41] Marcus Roberts: Hi there, Marcus Roberts. I'm a Director at Savills in the operational capital markets division based out of London.

[00:01:48] Marcus Roberts: My responsibility is for the European market. So everything outside of the UK, from Ireland, Czech Republic, Nordics, south through Spain and Italy, even in starting to look at the emerging market of Greece. I've been in the, looking at student housing sector specifically for probably about 20 years and really from every part of the sort of real estate supply chain.

[00:02:14] Marcus Roberts: So from site identification, working with developers. Through supporting developers in the planning process, and then look at the exits of the assets or portfolios across the pan-European region. And the moment, yeah, we're a team of 10 that focus specifically in the student housing sector.

[00:02:35] Philip Hillman: Thanks Marcus, and Sarah.

[00:02:37] Sarah Canning: So I'm the co-founder of the Property Marketing Strategists. I personally worked in property for almost 20 years and around 13, about exclusively in student accommodation. And as, as part of the property marketing strategies, we work with clients developers, operators, investors, and PropTech universities to really look into the strategy of their marketing function and which reaches across whole businesses. And yeah, predominantly that is in PBSA, but also in other asset classes, such as build to rent and co-living and university accommodation.

[00:03:10] Philip Hillman: Thank you, Sarah. And lastly myself. So I'm Phillip Hillman. I have been involved in student housing since the early nineties, when it wasn't really much of a sector at all in the UK.

[00:03:22] Philip Hillman: And I worked with Unite in the early days of that company, and then started working with a lot of the other operators. I have been involved in valuation then subsequently agency transactions in the sector. And currently I'm a consultant to JLL as well as consultant to Staykeepers and also to a company that is developing student housing in Ghana.

[00:03:43] Philip Hillman: I think it's time to crack on. And what I'd like to perhaps look at, first of all, is the investment market. We will go on to talk about the operational aspects of the sector, but the investment market, I said, it's been, you know, it's really lively the moment, Marcus, could you perhaps give us some perspectives on what you're seeing in Europe at the moment on the transaction side?

[00:04:05] Marcus Roberts: Yeah, certainly I think it's been a tremendous last sort of six years in the student housing sector in Europe specifically. I think it's really built the sector has built itself off the market in the US that then spilled over into the the emergence of the UK market in the early two thousands.

[00:04:23] Marcus Roberts: And the evolution of the product type portfolios then leading into MLA and this really, so building on the chronic under-supply of PBSA in the UK market. I think since the sort of 2015, 2016. So we've seen then seeing the evolution of the private equity in particular, starting to build portfolios in key European countries like Germany, Ireland, Iberia in particular.

[00:04:52] Marcus Roberts: And that has now led to, or leading to portfolios of scale. being developed and being now at a critical mass for other new institutional investors, looking to enter the space at both propco, but also at a opco level as well. And I'm sure we'll discuss what scalability, what critical mass actually sort of means to, to investors.

[00:05:16] Marcus Roberts: I think also there is the importance of the operator piece and so, and how over the last sort of five or so years. saw the mature maturity of the operator brands and platforms in particular has also evolved. And it's giving investors an opportunity to, again, to scale up, not just in PBSA, but also taking those rudiments of the PBSA sector into other markets, such as build to rent and potentially then into senior living, because the principles are very, very, very similar.

[00:05:54] Philip Hillman: Interesting. Thank you, Marcus. Perhaps if I could just give a bit of a perspective on the UK transactional side of that scenario that I'm involved with, particularly we saw in 2015 16 a peak of transaction. Volumes, which was reflecting the fact that the private equity houses and the institutional investors were all wanting to get into the living, the alternative residential living space in the UK, and with the build to rent market, still being relatively immature in the UK.

[00:06:26] Philip Hillman: Certainly it was then student housing was the only real way that investors could get into the, the, the residential space in the UK in any scale. So we saw a lot of global institutional investors coming in, buying up portfolios. And really since then, it's just been a process of consolidation, of the biggest players with gradually them getting bigger and bigger and eating up a number of the smaller players, not withstanding that there's still a lot of new entrance coming in and they're coming in from all over the world.

[00:06:58] Philip Hillman: And what I think is particularly interesting about where we are now, post pandemic is it really feels as though that there has been a, another surge in investor appetite for the sector and the investors are almost playing catch up on the last few years of, of the pandemic. Recognizing that the sector has performed resiliently throughout the dot com bubble the global financial crisis. And although, yes, there were issues of course, with, with universities being shut down and lockdowns, et cetera. But actually the perception is that student housing, as an investment asset class remains a good defensive arguably Contra cyclical investment sector.

[00:07:39] Philip Hillman: So we're seeing more investors coming in and this year could well be a record year for the volume of transactions. This could well be a, a 6 billion pound transaction volume year or possibly even more Martyn, have you got some perspectives on it?

[00:07:56] Martyn Roe: I mean, the one thing I would say is that a lot of the coverage gets attracted to the big ticket transactions and rightly so, I think one area that gets.

[00:08:07] Martyn Roe: Look to and perhaps is being missed at the moment is there is a relative weight of demand and a weight of money for investment in the recycling of existing accommodation, perhaps purchasing one-off assets or portfolios of first-generation, second-generation stock that was maybe built in the early two thousands.

[00:08:30] Martyn Roe: And has reached the end is reaching the end of its of its sort of economic and functional life. And so that's an area that I'm, tersely involved in quite, quite a lot. And like I say, I think it, I think, I think it gets overlooked in the headlines, but will play an increasing role. A lot of that first-generation stock, like I say, reaches its the end of its economic life.

[00:08:53] Philip Hillman: Thank you, Sarah. Do your clients seem to appreciate the extent to which student housing has become a very sought after asset?

[00:09:01] Sarah Canning: Definitely. And I'd say the biggest change that I've seen, which is just, you know, music to our ears is actually there's a real shift in the kind of, I guess the research and the consideration of those investments.

[00:09:12] Sarah Canning: So we're actually being approached much more regularly now to help carry out research out on what product, what the demand is. And it feels like investors are probably becoming a little bit more demanding of developers. It's actually being built where it's being built and what those gaps in the market are which is really, really promising for, you know, for the asset class, because you know, with the, with the boom over the last few years, I, I would argue that there's been enough maybe a lack of diversity.

[00:09:38] Sarah Canning: In the product, which, you know, will, will cause problems in the future, but it actually now feels like, you know, investors are looking for those, those gaps a little bit more. And you know, we're massive advocates of researching the customer, the end user. I would definitely think more of that.

[00:09:53] Philip Hillman: That's interesting. One thing that we've certainly noticed, and certainly I say we that's the sort of the JLL team is that we are having to spend less time perhaps reinventing the wheel, explaining to people how the student housing sector works. And that was being a feature that. 20 - 25 years. Particularly when you're dealing with institutional investors who might be making that first investment in the sector, there is such a volume of transactions.

[00:10:17] Philip Hillman: There is such a good record now of how the sector has performed, particularly during those difficult global. Economic periods that we've described the dot com global financial crisis, that we are able to demonstrate to people and reassure them as to how things, you know, how, how resilient the sector can be.

[00:10:37] Philip Hillman: There are still some very big pending transactions in the UK at the moment, the Brookfield sale process on the student Roost portfolio is, is it in the middle of a two-stage bid process? So we'll see what happens with that, but there've been four strong bidders looking at that. And with that likely to be in excess of 3 billion pounds, it's going to be another, another sort of seminal moment, I think, in, in the student accommodation sector.

[00:11:03] Philip Hillman: And of course the UK is pretty much open for business now when it comes to pandemic restrictions Marcus, how are you seeing the European recovery? If you like from post. Covid

[00:11:16] Marcus Roberts: Yeah, I think it's been, it's been pretty positive. Without a doubt, as you say, the international students are starting to come back in many geographies which has given the investors and developers alike, you know, real confidence and obviously the operators too.

[00:11:30] Marcus Roberts: I think that the there's probably been a, possibly been a bit more of a reset from some institutional investors. about What product type is going to be developed where where's the pricing point going to be. And are we aiming really at a domestic market rather than maybe the, the, the, the top end international student who were obviously they're often portrayed as being able to pay sort of slightly more enhanced rental price points compared to the a domestic student.

[00:11:59] Marcus Roberts: So, so at that I think is we're becoming a bit more forensic on that. And I think around that again, the type of product that product type that is, that is being developed effectively and efficiently environment viably on development.

[00:12:13] Philip Hillman: So any other comments from anyone about the investment market perhaps before we move on to operations?

[00:12:19] Marcus Roberts: Yeah, I think I think one other things to point out is is around debt finance as well. And the challenge is that I think all, all, all countries and all the investors have had about.

[00:12:32] Marcus Roberts: You know, what, what is student housing? You know, how does the ramp up look of the, the business plan look of a, of a student housing scheme? Once it's been completed and that's really been a bit of a blockage. I would say, certainly in the market in Europe is, is how local banks in particular or in country.

[00:12:54] Marcus Roberts: Lenders have to understand we are still learning. They're teaching them how, how the how the scheme will perform. We were looking at comparables from the UK about now how the ramp up works in each country has its own challenges. And I'm sure we'll come onto this again on the operating side about culturally.

[00:13:16] Marcus Roberts: The differences in each, in different geographies about how long it's going to take for a scheme to reach full occupancy.

[00:13:25] Philip Hillman: I've certainly noticed that the debt markets have, you know, it's one of the main things that people were focusing on as we came out of the pandemic is if you, we knew there was investor demand, but to what extent would the banks be in a position to make serious offers. And of course we have seen also a number of new players come in often insurance companies, or indeed some of the, the main investors and pension funds providing debt facilities themselves. So it's not just about the banks anymore, which in a way it used to be okay.

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