QIP offers opportunity to invest in UK student housing development

/ The Edge Property |

June 19, 2017 11:00 AM SGT

The student housing sector has become increasingly hot, fuelled by multibillion-dollar acquisitions by Singapore’s sovereign wealth fund GIC and Temasek-linked Mapletree Investments. Early this month, Maple tree Investments purchased a portfolio of student housing and multi- family properties in the US and Canada. This brings its total portfolio of student housing assets in North America and the UK to 43, with a total of 18,024 beds. The portfolio includes assets held under its sponsored Mapletree Global Student Accommodation Private Trust.

Peter Young, co-founder and CEO of Q Investment Partners (QIP), a Singapore-based boutique real estate fund manager, feels there is a niche for non-institutional investors who want to invest in student housing assets, but do not have the financial muscle of GIC and Mapletree to buy entire portfolios of assets.

The investors that QIP is targeting are high-net-worth individuals (HNWIs) and family offices that want to invest in institutional-grade properties, but may not have access to them.

“We [run] a buy, develop, operate and sell model, to enhance the value of the asset,” says Young. “We occupy a niche between providing HNWIs with institutional-level real estate that they would ordinarily not have access to, and institutions such as GIC and Mapletree, which seek to buy yielding assets, but don’t have the capability to develop them.”

‘Asset-by-asset approach’

QIP is offering an “asset-by-asset” investment approach. Part of the attractiveness of this approach is that it is easy for HNWIs to understand what they are buying into in terms of the location of the project, financing terms, investment period and exit strategy, says Young.

The firm’s first investment opportunity is a 284-bed purpose-built student accommodation block on West Street, the main thoroughfare of Sheffield city centre, in South Yorkshire, the UK. QIP is looking to raise £9 million ($16 million) in equity for the development.

The student housing block is located less than 1km from major academic institutions such as the University of Sheffield and Sheffield Hallam University, as well as retail and transport facilities. Sheffield presents an opportunity as existing and future developments cater to only 40% of the student population of 60,000, says Young.

The minimum investment is £350,000, with a four-year investment horizon. Investors can expect to get 16% annual non-compounding return, net of fees. Roadshows to raise capital in Singapore and Hong Kong have seen “an overwhelming response”, says Young.

In the UK, QIP works with Development Managers Ltd, a development and project management company headed by Kevin McGovern, who has a team of 16 professional staff. Besides handling the development and project management of QIP’s project in Sheffield, DML has also invested in it. McGovern was formerly with American real estate builder and investor Tishman Speyer Properties, Canadian real estate company Markborough Properties and Rosehaugh, a major property developer in the City of London and Docklands in the 1980s. The team will develop QIP’s development and investment projects in the UK.

Upon completion of the accommodation block, QIP will operate the asset until it has achieved stable income, generally over a two- to three- year period. The exit strategy will be to sell to a property fund or institutional investor buying into the income stream, says Young.

‘Counter-cyclical’

According to QIP business development director Alex Bellingham, the attraction of the student housing sector is “its counter-cyclical aspect”. Unlike residential property, which is affected by both political and economic uncertainty, the recent UK election has had “zero effect” on the student housing sector, he adds. What will affect the student housing market, and specifically QIP’s development, reasons Bellingham, is the number of international students in the location.

QIP is also looking at Nottingham as a potential location for a student housing development, as well as Birmingham and Edinburgh, cities with top-tier universities. The target is to have a pipeline of four student housing assets of £30 to £40 million each, with an eventual portfolio size of £150 million, says Young.

QIP chose to focus on the UK student housing sector owing to its principals’ track record in developing and investing in such assets. Young, for instance, was CEO and executive director of IP Investment Management for two years until November 2015. Prior to that, he was investment director at IP Global for two years. IP Global was founded in 2005 by its chairman, Tim Murphy, who specialises in property investments around the globe.

At IP Global, Young was involved in the investment and development of six student housing projects with over 800 beds in six cities, such as Birmingham, Cardiff and Edinburgh. Those investments achieved internal rates of return ranging from 12% to 20% over a three-year period.

Bellingham was formerly IP Global director and head of its Singapore office for seven years. He was also the officer responsible for IP Global’s fund management business in Hong Kong before joining QIP.

Finding value

In the course of marketing projects from around the world at IP Global — Birmingham, London and Manchester in the UK; Chicago in the US; Melbourne, Australia; Niseko, Japan; and Berlin, Germany — Belling ham has seen many clients accumulate property over the years. He has, likewise, done the same. “It was always about the ease of buying a property and generating returns for clients,” he says. “However, with the new taxes in place and difficulty in securing a mortgage, it has become harder to find value buys.”

Young (left) and Bellingham say QIP is focused on buying property and generating returns for clients

At QIP, the team will be rolling up their sleeves, undertaking development of their projects, securing financing, and operating or letting out the assets to generate returns for investors. “The assets will then [be] flipped to institutional investors looking to buy into the income stream,” says Young.

The recent weakening of the pound sterling has increased the purchasing power of most international students planning to study in the UK, reckons Young. “Given the large number of established, high-ranking universities in the UK, a degree from a British university will remain a major draw irrespective of Brexit and the geo political environment,” he adds.

Bellingham agrees. “The current position of the pound against many of the main currencies, including the US dollar and Singapore dollar, is also good for our investors as many of our clients are taking advantage of the current cheap currency to stay invested in Britain.”

He believes the student housing sector will continue to boom. In periods of uncertainty, more people will leave the workforce to seek a quality education, and possibly a change in careers, Bellingham notes.“This could further increase demand for student housing, thereby worsening the supply-demand metric.”

QIP has seven staff members in Singapore.Young’s equity partner and QIP co-founder is Singaporean Eu Khoon Ang, executive director of the firm and an entrepreneur who has invested across a wide range of venture capital and private equity businesses.

Besides student housing, QIP also sees potential in aged care and build-to-rent sectors in the UK.The private equity firm is also focusing on two other markets, Australia and the US, where it sees potential in student accommodation and aged care.

This article appeared in The Edge Property Pullout, Issue 784 (June 19, 2017) of The Edge Singapore

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