Maestro goes to school to pick up student tenants

Exploits another niche market

Is

student housing the next real

estate class to explode on the commercial market? Maestro Real Estate Advisors — already heavily invested in seniors’ housing — thinks so.

In fact, Maestro has not only bought a property aimed at students but is actively looking to invest in more student housing — an asset class almost completely ignored in this country.

It plans on creating a new $75million fund for student housing.

“Student housing is a largely untapped market in Canada,” said Pierre Ferland, chief executive of Maestro. “ It’s not a very well- organized niche market.”

Most student housing across Canada is not actually geared to students, with the exception of housing owned by universities and colleges. In the United States, the student housing market is said to be worth US$ 100- billion.

“ Students are poorly housed [ in Canada] and mixed with other residents in apartment buildings,” said Mr. Ferland.

Maestro will look to buy housing off- campus but close to academic facilities. The product will be different from traditional apartment buildings in that it will contain large apartments with shared facilities, such as study areas. The buildings will also be wired for the Internet.

“It will be much different than the bungalow and basement apartments [students live in now],” said Mr. Ferland.

Maestro is the final stages of buying a complex containing 1,000 beds from a private developer. The housing was constructed specifically for students, and is already 100% leased. Maestro won’t provide details of the purchase, other than to say it is in Ontario.

The company does not want to release deal details because its new fund for student residences does not close until Nov. 30. The fund is aiming for a 13.5% net return.

The move into student housing continues Maestro’s focus on niche markets. Yesterday, it said it has pumped a further $ 91- million into the seniors’ market, raising its investment in seniors’ residences to $ 630- million.

It bought in Ottawa, Windsor, Cornwall, Ont., Surrey, B. C., and Boucherville, Que. Maestro now controls 1,020 seniors’ rental units in Ontario. Yesterday’s move into British Columbia was its first in the province. The company is also raising more cash, creating a new fund, its fourth in the seniors’ market, worth $ 100- million. CB Richard Ellis Ltd.’ s thirdquarter study of capitalization rates — the return an investor is willing to accept on a property — shows investors continue to push prices up.

Cap rates are now as low as 4.25% for class A apartment buildings in Vancouver, and CB Richard Ellis says they are heading even lower.

“It’s steady, steady income and everybody wants its,” says Blake Hutcheson, president of CB Richard Ellis. “ It’s a tough market and buyers are getting very aggressive.”

If cap rates head much lower, they will bump up against riskfree bonds. The government of Canada’s 10- year bond now trades just above 4% and has been heading up.

Mr. Hutcheson said even with that small gap between bond and cap rates, investors are still moving into the sector because they can borrow money cheaply for their acquisitions.

The other factor driving purchases is a belief fundamentals across the commercial real estate sector are improving. That means a Vancouver apartment building that was bought at a 4.25% cap rate could provide a better yield once its vacancies are filled.