Student accommodation

A strategic investment

Philip Hillman FRICS

Higher Education Team

UK Full Time Student Accommodation - completed schemes as at September 2007

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

Shared Houses (730,499)

University Maintained Property (323,235)

Parental/Guardian home (255,765)

Commercial Halls (123,536)

Source: HESA/King Sturge Research 2007

Total Number of Full Time Students in Higher Education: 1,433,035

51%

22%

18%

9%

£6.5 billion

£13.75 billion

£202 billion

Overall Value of the Student Accommodation Sector as at September 2007

All Other Property Sectors (estimated IPD Capital Values)

University Owned Student Accommodation

Privately Owned Student Accommodation

Driving demand for student beds…

Increasing numbers participating in HE

Overseas student market

Increasing proportion of postgraduates

Higher student expectations

As an investment class…

Strong rental growth

High occupancy

Lack of quality product available

Non cyclical nature of the asset

City centre or campus locations

The evolving market…

A sector in its own right

Not residential, not commercial

Private sector developer / operator / investors

Sufficient transactions to benchmark values…

MOORFIELD PORTFOLIO

BASE PORTFOLIO

University of Birmingham

Three halls of residence 903 student bed spaces £47 million Liberty Living

University of Birmingham

Refurbishment works 2007

£3k per bed

University of Manchester

Two halls of residence

Manchester conference centre and hotel

Sold July 2007

£51 million

KX200

MX100

A market that is still evolving…

Credit crunch – ‘prime’ narrows, ‘secondary’ widens

Greater variation in room types

‘Standard’ product not suitable for all locations

Direct let in strong demand locations, lease or nominations in locations, where direct let not viable

Little in the way of private sector affordable offering

The next phase…

Private sector provincial developments will be more scarce

Private sector focussing on London market

320,000+ beds in the HE sector – more than 2.5x what the private sector has built!

The redevelopment of the HE residential estate

The HE residential estate

Often in prime, on-campus locations

Universities can make schemes work that the private sector couldn’t – unique marketing & allocation position

However much ageing stock – functional & economic obsolescence

Banks often keen to lend, but FD doesn’t always want to increase loans on balance sheet. HEFCE involvement.

Refurbish or redevelop?

Economic / functional life of the building?

Value as is v site value (with additional density)

The student experience – how is that quantified?

Cosmetic refurb v comprehensive refurb’

Retain as affordable offering or create premium product?

DIY or 3rd Party involvement?

Banks keen to lend at competitive long term rates

Opportunity to make a development profit in return for development risk

To reduce risk, consider pre-sale of completed scheme or to review ownership & financing options on completion of development

University operation & control ?

3rd Party involvement

Risk transfer – development, occupancy and operational costs

Capital receipt

Nomination agreement – initial rents, rental growth, who does what, how are the beds marketed

A long term partner - 30 to 50 years!

How do/will the students perceive it?

3rd Party Deal structures

35 – 50 year ground lease

Creation of LLP or charity vehicle

Vehicle can allow university equity participation

Phased redevelopment

Off balance sheet issues

City University, London

Five halls of residence 978 beds

Redevelopment potential 1000 + beds

Marketing late 2007

City University, Finsbury and Heyworth

3 halls 462 beds non en suite University sports centre Current rents £92.47 - £99.54

per week, 37 weeks Significant development

potential

University of Exeter, Lawfrowda

Looking ahead…

HE residential estate attracting worldwide interest

Balance of capital receipt / student experience

DIY has been successfully achieved by HE bodies. Banks keen to lend and valuable assets can be created.

Others will prefer to transfer risk to 3rd party

Status quo will rarely be an option.