Combinations of international capital and private buyers are now behind many of the largest student housing deals in the country, like the $1.3 billion purchase of University Housing Communities Group, Inc. (UHC) that closed at the end of June.
“There is now so much international money coming into U.S. student housing,” says Will Baker, managing director of multifamily finance with Walker & Dunlop, which helped finance the UHC deal. “They see rising enrollment at the larger, state universities.”
Low interest rates benefit these private buyers, while strong fundamentals for the student housing sector attract investment capital from overseas.
International investors enter U.S. student housing
The Scion Group, the largest private owner of student housing in the U.S., partnered with foreign institutional investors to complete the deal. GIC, the sovereign wealth fund of Singapore and Canada Pension Plan Investment Board (CPPIB) provided hundreds of millions in capital.
The giant deal is just the beginning for these international investors. “We look forward to working with GIC, an existing partner, and Scion, an experienced operator, on the UHC portfolio, as well as future student housing investment opportunities in the U.S,” says Peter Ballon, managing director and head of real estate investments Americas for CPPIB.
Student housing is attractive to international investors because it provides a means to invest in the U.S., where is the economy is relatively strong, and benefit from the strong performance shown by the student housing business throughout the recession and the economic recovery.
The UHC portfolio includes 18 stabilized properties and another four properties in development. All of the communities are close to large universities in Sun Belt states, from California to Louisiana and Georgia. “That’s where the largest enrollment growth is,” says Baker.
“Our confidence in the U.S. student housing sector continues, given its positive fundamentals and potential,” says Lee Kok Sun, regional head for Americas for GIC Real Estate. GIC has a long history of investing in student housing in Asia, though not in the United States.
“The UHC portfolio represents a valuable opportunity to enter the U.S. student housing sector with top-tier, well-located assets,” said Ballon.
The only student housing deal so far this year larger than the UHC sale was the $1.7 billion purchase this March of Campus Crest, a real estate investment trust, by Harrison Street, a private equity fund. Investors bought and sold a total of $36.8 billion in student housing properties in the second quarter. They paid an average price of $119,000 per unit at a capitalization rate of 5.0 percent, down from 6.1 percent the year before, according to data from Real Capital Analytics (RCA), a New York City-based research firm.
Favorable financing helped the UHC deal close smoothly. “Interest rates stayed low and got even lower,” says Baker.
The partners took out $672 million a credit facility, provided by Fannie Mae, which covered more than half of value of 14 of the 18 properties in the transaction, according to Walker & Dunlop. The $672 million credit facility is also equal to roughly half of the total $1.3 billion purchase price of the whole portfolio.
The huge loan is also flexible. It allows the borrowers to move properties in and out of the credit facility, and could potentially allow the partners to buy other properties in the future.
“The financing allows the partnership to expand over time,” says Baker.