LetterOne confirms €732m Pure Student Living deal with Carlyle

Privately owned investor LetterOne Treasury Services has snapped up the Pure Student Living portfolio in central London from alternative asset manager Carlyle for a total of £532 mln (€732 mln).

The deal comes a day after LetterOne's acquisition of a number of student beds from developer McLaren for a total of £140 mln.

LetterOne, which was co-founded by Russian oligarchs Mikhail Fridman, German Khan and Alexei Kuzmichev, said on Monday that it has exchanged contracts to buy McLaren Property’s Paris Gardens student residence as well as the Union development portfolio.

The Luxembourg-based firm was created to manage the investors' non-Russian and CIS businesses and financial resources. The multi-strategy investment vehicle with assets of over €21 bn is a recent entrant in the European real estate and asset-backed financing markets and is looking to invest a significant proportion of its $10 bn of liquid assets in large-ticket private transactions.

In the latest student housing deal, the Russian investor trio is buying the Pure Student Living package of 2,170 rooms across five prime central London sites for a yield of less than 5%. The acquisition brings LetterOne's total investment in student housing this month to nearly €900 mln.

Four of the assets, located at Highbury, Hammersmith, Bankside and City, are fully operational while the fifth facility at Whitechapel, will deliver a further 417 rooms when it is completed in August 2015.

Carlyle entered the London student accommodation market in 2010 when it acquired the Highbury site on behalf of its third pan-European real estate fund, Carlyle European Real Estate Partners III. It has subsequently grown Pure Student Living into one of the capital’s largest student housing portfolios.

The transaction has been structured to complete in two stages with the first phase comprising the acquisition of the four operational assets. The deal will be completed in full when Pure Whitechapel is delivered in summer 2015.

The Student Hotel
Carlyle said it remains committed to student housing as a long-term institutional asset class following its investment in a student accommodation business in the Netherlands six years ago. Carlyle now has over 1,700 rooms operating in Amsterdam, Rotterdam and The Hague, which are managed under The Student Hotel brand.

Commenting on the transaction, Mark Harris, managing director at The Carlyle Group, said: 'Having first entered the London student accommodation market over five years ago at a time when there was little equity, debt or appetite for development, we have subsequently built Pure into one of London’s foremost student living portfolios. The sale of this high-quality portfolio, against a far more robust and certain economic backdrop, represents a successful result for this investment.'

Carlyle was advised on the legal side of the transaction by BLP.

With Russia battered by international sanctions, an economic crisis and weak oil prices, local investors have been searching for new investment destinations.

Net capital outflows from Russia nearly tripled in 2014 to their highest level on record, according to Russian central bank data. Net outflows by companies and banks reached $151.5 bn in 2014, up from $61 bn in 2013 and exceeding the previous record of $133.6 bn set in 2008 during the global financial crisis.

The exodus of capital also works as a hedge against a weakening rouble, which has plunged by 40% against the dollar last year.

LetterOne is not the only Russian property investor looking outside its home market. Earlier this year O1 acquired a stake in Austrian listed firm CA Immo and is now seeking to purchase a stake in CEE developer-investor Immofinanz.