EUROPE - M&G said today it would provide a senior loan for Round Hill Capital's £424m (€522.6m) acquisition of Blackstone's Nido student accommodation portfolio as it confirmed plans to raise two real estate debt funds this year.
Under the deal announced this morning, M&G will provide £266m in senior debt, and US hedge fund Och-Ziff will provide a further £80m in mezzanine debt, to acquire the three central London assets.
The Round Hill Capital deal will be M&G's second student accommodation loan in as many months, following a refinancing agreement to provide a five-year, £115m loan to the IQ Property Partnership fund.
The size of the deal and the lack of available debt in the market meant Blackstone took longer than usual to agree the sale of assets acquired between 2005 and 2008.
The US private equity group struggled to extend the Nido brand beyond the UK and one development asset in Barcelona - which is not included in the deal - because of prohibitively high land prices.
However, it is understood to be targeting further investment in what it sees as a non- or counter-cyclical subsector that held up especially well during the financial crisis.
Despite an increase in UK tuition fees and forecasts of fewer overseas students studying in the UK, a source close to the deal described the supply/demand dynamics in the sector as "dramatic".
"There is undersupply pretty much everywhere - just as there is in key worker housing," said the source. "Universities tend to be in central city locations, and students can't afford to live there."
The Blackstone deal comes just days after insurer Legal & General confirmed it had agreed to provide a £121m 10-year loan to student housing firm Unite Group.
According to CBRE data published last month, student accommodation transaction volumes topped £246m in the first quarter.
Investment in the sector last year increased by 50% over the previous year to £1.1bn.
Meanwhile, the Prudential asset manager is looking to raise a successor to its current mezzanine fund and a new senior debt fund before the end of the year.
Few details were available on the mooted funds, but M&G spokesman David Butcher said the senior debt fund would target fixed income investors while "real estate people are more interested in the mezzanine story".
M&G has to date only invested in senior debt for Prudential.
Butcher said attractive pricing in the debt market created an opportunity to use the fund manager's existing expertise - but with capital from external investors.