CASH­ING IN ON STU­DENT HOUS­ING

The short­age in stu­dent ac­com­mo­da­tion - lo­cally and abroad - presents a size­able op­por­tu­nity for the prop­erty in­dus­try.

Finweek English Edition - - FRONT PAGE - By Glenda Wil­liams

huge un­der­sup­ply. Mas­sive de­mand. You would think that in­vest­ment into stu­dent ac­com­mo­da­tion would be a slam-dunk for prop­erty in­vest­ment funds. But up to now, it’s been a hard sell. And it has a lot to do with the man­age­ment in­ten­sity re­quired for this sub-sec­tor of the res­i­den­tial mar­ket.

But the pur­suit of cap­i­tal growth, yields and in­come in a tough eco­nomic en­vi­ron­ment re­quires a dif­fer­ent tack. Now prop­erty de­vel­op­ers and in­vestors are ex­plor­ing new as­set classes and sub-sec­tors they might other­wise not have in­vested into. And they are re­cy­cling non-core as­sets that or­di­nar­ily they may have dis­posed of.

One of these new as­set classes is the lu­cra­tive stu­dent ac­com­mo­da­tion mar­ket. And with an ac­com­mo­da­tion short­fall in South Africa of around 75% (ac­cord­ing to fig­ures from John School­ing, man­ag­ing di­rec­tor of STAG African), it’s a size­able op­por­tu­nity for prop­erty de­vel­op­ers and in­vestors.

Res­i­den­tial yields, which were not as at­trac­tive as the re­tail and com­mer­cial sec­tors a few years ago, are now look­ing more ap­peal­ing to listed prop­erty funds, es­pe­cially when the ex­pected yield from the stu­dent ac­com­mo­da­tion sub-sec­tor is 10%. Not to be sniffed at given chal­leng­ing lo­cal prop­erty fun­da­men­tals.

But it is a sub-sec­tor of the res­i­den­tial mar­ket that re­quires skilled man­age­ment ca­pa­bil­i­ties – so it is not for the faint-hearted or in­ex­pe­ri­enced. Part­ner­ing then with those that have the ex­per­tise in this field is cru­cial for those dip­ping their toes into this po­ten­tially lu­cra­tive mar­ket.

“It’s a man­age­ment-in­ten­sive and cost­sen­si­tive busi­ness. This is a ho­tel-on-steroids busi­ness,” An­drew Konig, CEO of Rede­fine

Prop­er­ties, tells fin­week. The JSE-listed REIT’s ex­po­sure to stu­dent ac­com­mo­da­tion lo­cally is only through its 51% hold­ing in Re­spub­lica, a com­pany that spe­cialises in the de­vel­op­ment and man­age­ment of stu­dent res­i­dences, cur­rently num­ber­ing five. “We chose Re­spub­lica be­cause it has a pre­mium brand and we want to be associated with qual­ity,” says Konig.

It’s a new as­set class for Rede­fine and while still small, ex­po­sure is likely to in­crease. A num­ber of Rede­fine’s non-es­sen­tial as­sets are prime can­di­dates for con­ver­sion into stu­dent hous­ing, Konig says. Hence its joint ven­ture with Re­spub­lica to re­vi­talise Hat­field Square in the pop­u­lar stu­dent hub of Pre­to­ria, which will sup­ply stu­dent ac­com­mo­da­tion for an ad­di­tional 2 200 stu­dents. The next most likely can­di­date for con­ver­sion is the Absa Cam­pus build­ing near Wits Univer­sity in Jo­han­nes­burg.

Aside from qual­ity of ac­com­mo­da­tion, one of the ma­jor driv­ers of de­mand is prox­im­ity to a univer­sity, says Konig. But tim­ing of de­vel­op­ment to mar­ket is im­por­tant. “If you don’t get your de­vel­op­ment com­pleted by end De­cem­ber, you miss a whole in­take. And if you com­plete mid-year, the res­i­dence stands empty for half the year.”

Global short­age

The stu­dent ac­com­mo­da­tion short­age is not a prob­lem pe­cu­liar to SA. It is a global one. Un­sur­pris­ingly, Rede­fine’s foray into pre­mium stu­dent ac­com­mo­da­tion has not been con­fined to lo­cal shores.

Once the com­pany’s ground­break­ing €1.2bn Pol­ish deal kicks in, its off­shore port­fo­lio will grow from 20% to 25%. Of that, Aus­tralian in­vest­ments will rep­re­sent 36% of its off­shore ex­po­sure.

Not un­ex­pected then that Rede­fine has ex­panded its off­shore stu­dent ac­com­mo­da­tion goals into known ter­ri­tory, where Konig says qual­ity stu­dent ac­com­mo­da­tion is in dire short­age.

“In Aus­tralia, the pro­vi­sion of univer­sity tuition is Aus­tralia’s third big­gest ex­port, Konig tells fin­week. “In­ter­na­tional stu­dents are wel­comed and they pay top dol­lar.”

Re­cently, the com­pany in­vested AU$30m for the pur­chase of a car park a mere 200m from the univer­sity in Mel­bourne that it en­vis­ages will cost around AU$100m to re­de­velop into stu­dent ac­com­mo­da­tion. Konig says first-year yields of 10% are ex­pected.

The slice of Rede­fine’s stu­dent ac­com­mo­da­tion might not be that mean­ing­ful; at only around R1bn com­pared to Rede­fine’s to­tal as­set value of R67.8bn. But with ad­di­tional prop­er­ties be­ing re­cy­cled to­gether with the Aus­tralian in­vest­ment, that slice is set to in­crease.

Gear­ing for stu­dent ac­com­mo­da­tion

Not all prop­erty in­vest­ment com­pa­nies specif­i­cally de­velop ac­com­mo­da­tion for stu­dents. But they gear them in such a way as to pro­vide for this lu­cra­tive mar­ket, es­pe­cially when de­vel­op­ing in a stu­dent catch­ment area.

Such is the case with Oc­todec In­vest­ments. The JSE-listed REIT fo­cuses on Gaut­eng and is one of the larger prop­erty own­ers in the Pre­to­ria CBD, where the com­pany in­vests sub­stan­tially in ur­ban re­newal; 30.2% of Oc­todec’s R11.8bn port­fo­lio of 324 prop­er­ties in Gaut­eng is res­i­den­tial.

“While not in the busi­ness specif­i­cally to pro­vide ac­com­mo­da­tion for stu­dents, a third of our res­i­den­tial com­po­nent – just un­der 10% of our en­tire port­fo­lio – is ac­com­mo­da­tion rented by stu­dents.”

Of those 9000-odd res­i­den­tial units that cater to stu­dents, young pro­fes­sion­als and fam­i­lies work­ing in Gaut­eng’s CBDs, 3 000 of those pro­vide ac­com­mo­da­tion for stu­dents, Oc­todec’s fi­nan­cial di­rec­tor

An­thony Stein tells fin­week. “While not in the busi­ness specif­i­cally to pro­vide ac­com­mo­da­tion for stu­dents, a third of our res­i­den­tial com­po­nent – just un­der 10% of our en­tire port­fo­lio – is ac­com­mo­da­tion rented by stu­dents.” And to man­age this man­age­ment-in­ten­sive res­i­den­tial mar­ket Oc­todec has part­nered with as­set man­age­ment spe­cial­ists City Prop­erty.

Take The Fields, Oc­todec’s mixed-use de­vel­op­ment in Pre­to­ria’s stu­dent cap­i­tal Hat­field, which in­cludes plenty of re­tail space and a stu­dent study cen­tre. Here the rental of a bach­e­lor pad with tight se­cu­rity would set stu­dents back R4 750 a month. The sit­u­a­tion is sim­i­lar at Steyn’s Place, also in Pre­to­ria, where the 380 bach­e­lor, one-bed and twobed units are mostly oc­cu­pied by stu­dents.

Yet, not all prop­erty en­ti­ties are look­ing to in­vest into stu­dent ac­com­mo­da­tion and some who have al­ready in­vested into this res­i­den­tial sub-sec­tor are even dis­pos­ing of their in­ter­ests. JSE-listed cap­i­tal-growth prop­erty fund Attacq re­cently dis­posed of its 30% in­ter­est in The Pavil­ion, a stu­dent res­i­den­tial ac­com­mo­da­tion prop­erty in Birmingham in the UK, for R34.9m.

Stu­dent ac­com­mo­da­tion as a value driver is not only at­tract­ing large in­vest­ment funds. Pri­vate in­vestors are just as keen to in­vest. And it can turn into a bid­ding war be­tween buy-to-let in­vestors, ea­ger par­ents des­per­ate to se­cure ac­com­mo­da­tion for their off­spring, and young pro­fes­sion­als all vy­ing for high-de­mand prop­er­ties lo­cated in stu­dent catch­ment ar­eas.

Ubuntu House is the new­est ad­di­tion to the res­i­dences at Stel­len­bosch Univer­sity’s Tyger­berg cam­pus.

Oc­todec’s de­vel­op­ment, The Fields, in Hat­field, Pre­to­ria, in­cludes re­tail space and a stu­dent study cen­tre.

STAG African stu­dent ac­com­mo­da­tion de­vel­op­ment

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