The Netherlands’ public pension fund managers APG and Bouwinvest have swung their weight behind an Australian build-to-rent (BTR) partnership with student accommodation leader Scape Australia founders, Stephen Gaitanos and Craig Carracher.
The A$1.5 billion platform will build on Scape’s position as Australia’s largest rental accommodation owner of student accommodation, which was set up with APG’s backing in 2015 when it secured a 50% stake. The new platform will reportedly diversify into multi-family assets with a minimum of 10,000 apartments by 2030. In 2016, the Dutch funds jointly participated in a A$150 million capital commitment to Scape.
Bouwinvest’s Sydney-based portfolio manager, Jorrit Sennema, said: “Our BTR strategy is looking to capitalise on the structural mismatch between demand and supply of good-quality rental accommodation in the Australian market. This joint venture is addressing the need for professionally-managed rental product in well-connected locations for tenants demanding flexibility and security of tenure.”
Sovereign investors have devoted around US$14 billion to student accommodation from 2015, directed mostly to three markets: the USA (37% of the total), the UK (37%) and Australia (17%). Investments in Australian student accommodation are dominated by APG‘s and Bouwinvest’s growing partnership with Scape. The new platform could see other state-owned investors seek to diversify student accommodation platforms into residential BTR, potentially unlocking billions of investment - focusing on these three main markets.
Student accommodation represents 3% of the total investment by sovereign wealth funds and public pension funds from 2015, but last year investment in the segment hit an all-time high of US$5.1 billion – 7.8% of total spend on real estate. The decision to make hefty commitments to the sector indicate a more defensive strategy in real estate, reliant on safe returns rather than the prospect of fast growth in property values seen in other real estate segments, particularly single-family and multi-family accommodation.
Global SWF notes one significant similarity between today and the previous peak in 2016: market dislocation and volatility in public equity markets, which accompanied lower commercial rents in the real estate market. Student accommodation offers investors a captive market of renters in high density accommodation and far fewer risks in terms of rent non-payment. As such, the segment is seen as relative stable, as demand is unlikely to diminish and income is reliable. At a time when all asset classes are impacted by plummeting asset values and uncertainty, state-owned investors are looking for sectors that offer some sanctuary from the turmoil and resilience in the face of turbulence.
Canadian public pension funds have also shown a liking for Australian student accommodation. Last October, Ivanhoe Cambridge, the property arm of Canada’s second-biggest pension fund CDPQ, invested A$1 billion into the Scape Core Program, the fund currently manages a portfolio of 27 rental residential buildings and 13,000 rooms for students, predominantly in Sydney and Melbourne.
However, the UK led investment in 2022, as SOIs snapped up property that benefitted from the cheaper pound sterling as well as a chronic shortage of purpose-built student accommodation and lighter regulations than other residential segments.
Last June, Singapore’s sovereign wealth fund GIC joined with APG to take a majority stake in The Student Hotel (TSH), in a deal valuing the European student housing, co-working and hotel group at EUR2.1 billion (US$2.2 billion). APG has invested in TSH since 2015, while GIC joined as a new investor. Europe, and in particular the UK, has been the main destination for investors in the university housing market. TSH proved resilient during the lockdown through a hybrid use of real estate for student accommodation, hotel rooms, co-working and meeting spaces, bars and restaurants.
GIC and US investor Greystar Real Estate Partners also bought one of the UK’s largest student-accommodation portfolios, Student Roost, from Brookfield. According to Bloomberg, the deal valued Student Roost at approximately GBP3.3 billion (US$4.2 billion). Its portfolio comprises over 23,000 beds, and there are plans to develop about 3,000 more.