Bouwfonds REIM also launching new student accommodation fund

Meanwhile, on a European level, Dutch investment manager Bouwfonds is also beefing up its involvement in the student sector with the launch of a new European fund dedicated to student accommodation. Bouwfonds, part of the Dutch Rabo Real Estate Group, said the Bouwfonds European Student Housing Fund will be structured as a German ‘Spezialfonds’ and will be placed with German institutional investors.

The fund, with a core risk profile, focuses on major European university towns and cities in Germany and France, followed by the UK, the Netherlands and Scandinavia. The targeted fund volume is between €200m and €300m. The expected annual yield for investors is around 4% (IRR of 5.5-6.5%) and the maximum leverage 40%. Cities of interest in Germany include Freiburg, Regensburg, Munich, Stuttgart, Marburg and Heidelberg, suggested Bouwfonds.

The group’s investment management arm Bouwfonds REIM has already invested and managed student housing on behalf of its European Residential Fund, created in 2007. The vehicle now comprises six student housing complexes, located in Germany and France.

“If we compare the direct yields with those of more conventional residential real estate in our portfolio, these student residences are outperformers, despite their need for more intensive management,” said fund manager Xavier Jongen.

Bouwfonds believes the sector will continue to benefit from stable demand driven in particular by growing numbers of foreign students from outside Europe. “Another plus point is the anti-cyclical nature of the student housing market: in times of economic weakness and poor job prospects, more people opt for higher education and tend to study longer,” the company said. Bouwfonds REIM has €5.5 bn assets under management.

Like the CBRE report on German student housing (see elsewhere in this issue), Bouwfonds has also carried out its own report into the long-term profitability of the major European student housing markets.

This study, ‘Investing in European Student Housing’, focuses on the core countries Germany, France and the Netherlands, where Bouwfonds REIM is active, together with the United Kingdom. The study mentions the relatively attractive yield and points out other positive features of investment in student housing. It predicts long-term stable demand for student housing in Europe, bearing in mind the important relationship between education – resulting in higher productivity – and economic growth in a Europe grappling with the problems of an aging population. This demand will be driven in particular by growing numbers of foreign students from outside Europe.

“Europe can benefit from the growing tendency among Asian students, for example, to study abroad due to the wide range of fairly affordable courses, an increase in the number of programs taught in English, and the attractive cultural and historical cities of Europe,” says Jaap Gillis, CEO of Bouwfonds REIM.

Meanwhile, a fellow Dutch investor and pension fund manager PGGM, which has already entered the student housing markets in the UK and the US, also said it was looking for a viable market strategy to enter into mainland Europe’s markets by replicating its UK joint-venture model, but has so far been looking in vain for suitable platform.

The Dutch investor acquired a controlling interest in the UK university accommodation provider University Partnerships Programme (UPP) last year, the UK’s leading provider of campus-managed university accommodation. Senior investment manager Vincent Gerritsen said PGGM had yet to find an equivalent structure in mainland Europe.

 “We’ve got everything we need [in the UK],” he said. “If similar structures or investment opportunities emerged in other markets, we would happily look at them – but there is only a handful that have the partnership model.”

Gerritsen contrasted the UK with the heavily regulated and subsidised Dutch student housing sector, where tight rent regulations prevented investors earning market-based returns. The result was that investors struggled to find "economically sensible opportunities".

He added: “There are only so many student-accommodation markets that interest us as an infrastructure investor. Often, student accommodation is a local or nationally regulation-driven subsidised asset class instead of a free market.”

Explaining why the €128bn pension fund manager included European student housing within its infrastructure portfolio, Gerritsen said the classification had been the subject of internal debate. In the US market, PGGM is taking the approach of buying student housing assets directly (as International Campus AG and YOUNIQ are doing in Germany, for example). The UK approach is more in the form of a public private partnership (PPP), where under its agreements with UK higher education institutions – including restricted covenants limiting the amount of new supply that can be brought into the university and the rent agreement – ownership reverts to the university at the end of the agreement term.