How CPP Investments become one of the largest owners of student housing

Canada Pension Plan Investment Board (CPP Investments) sees scale as fundamental to success when putting money into student accommodation. Within a decade, the C$576bn (€392bn) pension fund has built a portfolio that makes it the second-largest institutional owner of purpose-built student accommodation (PBSA) in the world. 

According to data platform Global SWF, CPP Investments accounted for 30% of a total US$12.3bn (€11.4) invested by public pension plans, sovereign wealth funds and state-owned agencies in student housing between 2015 and 2023. Its global market share rose from 25% (US$2.75m) in 2022 to 30% (US$3.69bn) last year.

 The Canadian investor has narrowed the gap with Singapore sovereign wealth fund GIC, which has been both a partner and a competitor in the sector. GIC had a 48% share of total student housing transactions in 2022. Global SWF’s managing director Diego Lopez says that, in 2023, GIC’s share was 36%. It is still the largest institutional investor in this space. 

CPP Investments does not disclose the value of C$45.5bn real estate portfolio by sector, but according to data from MSCI Real Assets and property consultants Savills, it was estimated to have US$6bn invested in student housing value at the beginning of 2024.

In the vast US market, CPP Investments and its partners have now established a footprint that stretches from coast to coast. CPP Investments and GIC partnered with the Chicago-based Scion Group in 2016 to establish a joint student-housing venture. They each hold an equal share of approximately 45%, with Scion carrying approximately 10%. 

From an initial investment of around US$1.4bn – to acquire University House Communities – the joint venture grew to its present scale of 74 properties, more than 48,000 beds and gross cost basis of more than US$4bn. For context, if the portfolio were a standalone company, it would be the fifth-largest student housing owner in the US, which has also made Scion a leading off-campus owner of student accommodation in the country.

Peter Ballon, managing director and global head of real estate at CPP Investments, says the joint venture virtually started “at zero”, but it bolted on one acquisition after another to grow the US portfolio to span 25 states and 50 university markets.

Its investment in the UK has followed a similar growth trajectory. Having first acquired Liberty Living in 2015, the Canadian pension fund in 2019 entered a shares and cash deal with the listed Unite Group in a US$1.8bn transaction. That deal gave CPP Investments a 20% stake in Unite, which now has 70,000 beds across 162 properties in 23 university towns and cities. At the end of 2022, Unite’s assets under management was £5.4bn.

Next stop is continental Europe. Ballon is particularly excited about the opportunity to replicate the growth experienced in the US and UK, given the nascence and fragmentation of the sector in the region.

But Europe is more complex and, particularly with housing, there are different regulatory environments for each of the countries, he says. “The asset sizes are small and it takes a lot of effort and commitment of time and knowledge to get there.”

But get there, CPP Investments will. “When we do things, we like to do things at scale,” Ballon says. “While we don’t set a goal per se, we do have a reasonably ambitious growth plan in Europe.”

CPP Investments historically partnered with Round Hill Capital in Continental Europe through a vehicle known as Round Hill European Student Accommodation Partnership, formed in 2021. Within months, it doubled its investment in the vehicle from €475m to €950m to target a diverse portfolio of more than €2bn. Given the scale of the market opportunity, CPP Investments is now also considering other avenues to pursue its ambitions in European student housing.

“We are progressing in Europe, but finding an agreement with sellers or developers on pricing has been difficult. Usually, our approach is not to buy core stabilised properties on the continent. We have been more development-oriented to date, getting alpha through creating value. Even in the US, where we usually buy stabilised properties, in many of these, there is value-add opportunity.”

CPP Investments arguably timed its entry into student housing well, at a time when it was more of a niche investment area. The past decade has seen an enormous transformation of the sector, with strong capital appreciation and an influx of institutional investors chasing assets.

“Student housing has proven to be one of the most resilient sectors,” says Ballon. “The pandemic was an incredible test case. A lot of people thought students would migrate to online learning and so on, and that this would put a huge dent in demand for student housing. What we learned was quite the opposite.” 

He points to his own family experience; his daughter chose to live at her university dormitory even though she could have done her studies online from home. Clearly, she was not alone – the large markets in the US and UK both shored up student accommodation occupancies right through the global pandemic, even when countries shuttered their borders.

And current economic uncertainty has not dented student enrolment growth. “Supply of student housing isn’t keeping up and you can put that in the context of a shortage of all housing types. In that respect, student housing has proven to be extremely resilient; rents in our portfolio are progressively moving higher. Our rental revenue growth has either exceeded – or is at – our expectations,” Ballon says. “Other than logistics, housing in general has been one of the best performers in our portfolio.”

CPP Investments is active across US residential markets, including student housing, multifamily and single-family rentals. “Each of them has done extremely well, but with their own local differences,” Ballon says. “Even within the same sector, whether it is student housing or multifamily, returns vary from market to market, university to university.”

But when Ballon looks at the asset classes on a risk-adjusted basis, student housing can be considered as having lower risks than housing in general. The risk in housing is oversupply, and in student accommodation, it is considerably lower.

“The real risk in housing, in general, is regulatory not commercial. We are careful to focus on investments where we think there has been less regulatory risk,” he says. “We are fine with the regulatory framework that exists, it is more about the risks of it changing. We now have a building in the Netherlands that has strict rent controls. We did our underwriting with those components in mind – each of the different countries in Europe has very different regulatory environments that we are aware of.”

CPP Investments is conspicuously absent from student housing markets in Asia-Pacific, despite being active across other real estate sectors in the region. “The answer is that we have yet to find an opportunity that makes sense for us,” Ballon says.

The picture is similar in South America. “We are active mostly in Brazil, but it doesn’t have a student market of size to allocate our time and capital. This is not to suggest that there could not be one or two good opportunities. The trade-off is that you need to be able to do things at scale – and that doesn’t present itself right now.”