Canadian pension fund CPPIB aims to branch out into other university towns in the UK following its £1.1 bn (€1.5 bn) acquisition of student housing manager and developer Liberty Living. Andrea Orlandi, CPPIB's head of real estate investment in Europe, details the fund's strategy in an interview with PropertyEU.
Canadian pension fund CPPIB aims to branch out into other university towns in the UK following its £1.1 bn (€1.5 bn) acquisition of student housing manager and developer Liberty Living. Andrea Orlandi, CPPIB's head of real estate investment in Europe, details the fund's strategy in an interview with PropertyEU.
Orlandi described the acquisition of Liberty Living - CPPIB's first foray into the student housing market - as a ‘rare opportunity’ to acquire both a student housing provider and its underlying management platform.
‘We’ve been looking at the sector for the past couple of years but this is our first-ever student housing acquisition. It’s an interesting sector but it was a question of the entry point. We were focused on scale – acquiring something sizeable – and the ability to acquire the underlying management company,’ Orlandi said.
Liberty Living is one of the largest providers of student accommodation in the UK with over 40 residences spread across 17 university cities, including London, Manchester and Leeds. Established in 2000, it manages over 16,700 rooms. CPPIB acquired Liberty Living’s student housing portfolio and management platform from the Brandeaux Student Accommodation Fund.
Record student numbers
Alternative real estate assets, such as student housing and healthcare, have been storming the charts in the UK in the past year, accounting for £11.6 bn of deals, a 33% hike on 2013 levels, according to JLL.
‘Student housing is rapidly becoming mainstream,’ said Jo Winchester, head of student housing at CBRE in London. ‘International money and global pension funds are showing a lot of interest in the sector.’
The repositioning of student housing as a major asset class is also being driven by record number of students - both domestic and international - entering the higher education market in the UK. Over half a million students secured a higher education place in the UK last year, according to the Universities and Colleges Admissions Service (UCAS). This is the highest intake ever recorded and suggests that even the introduction of a higher tuition fee cap of £9,000 per year in 2012 has not dampened demand. Overseas student numbers have rocketed by 57% since 2004, according to UCAS.
Compelling cap rates
Moreover, student housing cap rates are compelling, not least because they are outstripping office cap rates in the UK this year, at 5.82%, compared to around 5.35% for offices, according to Real Capital Analytics, which is also driving investor interest.
Going forward, CPPIB’s aim is to ‘position Liberty for success’ and to branch out into other university towns in the UK, according to Orlandi. ‘We want to grow the portfolio. We’d also be interested in developing student housing,’ he said.
Further deals are also on the cards this year. ‘We don’t have a minimum or maximum investment target,’ Orlandi said. ‘We’re not capital constrained, so we’re open to spending a couple more billion in Europe this year if we find the right investment opportunities.’ The pension fund manager had $6 bn of real estate AUM in Europe and $30 bn of real estate assets globally as of end-December 2014.
Surge in big deals
Student housing deals have escalated this year with a number of big deals closing or on the brink of closure. Last week, US apartment manager Greystar Real Estate Partners acquired the Nido student housing portfolio comprising three central London assets in King’s Cross, Spitalfields and Notting Hill from UK-based private equity group Round Hill Capital for £600 mln.
‘Our purchase of Nido Spitalfields, Nido Kings Cross and Nido Notting Hill align perfectly with Greystar’s strategy and philosophy of owning and operating assets that set a new standard of service and resident experience in the student accommodation industry,’ said Greystar’s UK managing director Brett Lashley. The student housing assets comprise 2,375 beds and also include dining facilities, gyms, cinemas and bars. Round Hill Capital acquired the portfolio from Blackstone for £415 mln in May 2012.
Third-round bids are understood to be in for Knightsbridge Student Housing’s £500 mln Westbourne Portfolio, according to Winchester at CBRE. ‘It’s a UK-wide portfolio with 5,863 bed spaces across 10 cities, including London and Lincoln,’ said Winchester. ‘Interest in the portfolio has been very international.’ She declined to comment on potential bidders but added that the sale is expected to go through by the end of the second quarter. CBRE is not advising directly on the deal.
Earlier this month (March), privately owned investor LetterOne Treasury Services acquired the Pure Student Living portfolio in central London from alternative asset manager Carlyle Group for £532 mln (€732 mln). LetterOne - which was co-founded by Russian oligarchs Mikhail Fridman, German Khan and Alexei Kuzmichev –also acquired the 253-bedroom Paris Gardens scheme in Southwark, London, from McLaren Property and Apache Capital Partners for £61 mln last week.
Sara Seddon Kilbinger
Correspondent German-speaking countries & UK