CPP Investments' Big Bet on the European PBSA Market
Round Hill Capital, a leading global specialist real estate investor, developer and manager, has today announced a new joint venture (“the JV”) with Canada Pension Plan Investment Board (“CPP Investments”), which is responsible for investing assets in the best interest of more than 20 million CPP contributors and beneficiaries in Canada.
The JV, targeting assets in excess of €1 billion, will be one of the largest European student accommodation partnerships. It will invest in standing assets and developments across PBSA markets in Continental Europe, with capacity to invest in the major education markets across the continent. CPP Investments’ initial allocation of equity will be €475 million.
The announcement marks another major milestone for Round Hill Capital as it continues to build considerable momentum in the sector, with 40 PBSA acquisitions across the UK and Europe since 2002, including recent acquisitions in Spain, Germany and the Netherlands worth over €150 million. Assets will be operated primarily by Nido Student, Round Hill Capital’s award-winning specialist PBSA brand.
Commenting on the JV, Michael Bickford, founder and CEO of Round Hill Capital, said:
“We are delighted to be partnering with CPP Investments in our joint mission to raise the quality of PBSA assets across the continent. This joint venture, one of the biggest European PBSA partnerships to date, represents another market leading investment platform for Round Hill Capital. This ground-breaking deal illustrates the strength of our investment offering underpinned by our vertically-integrated structure which includes Nido, a market-leading student housing brand. With 40 PBSA acquisitions to date, worth a collective €1.8 billion, we are firmly established as a market leader.”
By year end the JV is expected to have approximately 2,000 beds secured in Spain and the Netherlands based on contracted assets and those under exclusivity.
Andrea Orlandi, Managing Director, Head of Real Estate Europe, CPP Investments, said:
“Demand for high-quality student accommodation in many European countries is underpinned by structural changes, including increasing tertiary education participation rates and increasing international student mobility, but is contrasted by limited current supply. Our new partnership with Round Hill Capital will increase our exposure to this asset class across European markets, leveraging their deep sector knowledge and insight to meet the needs of students and drive long-term value for CPP contributors and beneficiaries.”
European PBSA represents a rapidly maturing investment market and current data suggests that the number of students choosing to study in Europe will rise over the next five years*, yet the majority of European cities lack sufficient high-quality student accommodation to support such growth. As a consequence, the demand for private sector PBSA provision is expected to rise significantly, and today’s landmark venture establishes one of Europe’s largest sources of capital to meet this need. Round Hill Capital has a 19-year track record of successfully investing in, developing and operating such assets across Europe.
Brian Welsh, Head of Student at Round Hill Capital, said:
“There are unprecedented levels of capital looking to invest in resilient income streams, but the challenge many will face is having access to deal flow and having the market insight and data to extract maximum value. Our long track record in this sector and local presence in core European markets has helped us establish a market-leading position over many years.
“We are seeing significant scope for growth in many markets and together with our student operating platform, Nido, we have the track record to navigate the nuances that define many different cities across Europe. High quality housing remains in short supply in many locations and while much more can now be done online, the need for face-to-face engagement and the desire for a world-leading education will continue to drive customer growth across key markets.”
ENDS
* Research conducted by Savills, link here.
About Canada Pension Plan Investment Board
Canada Pension Plan Investment Board (CPP Investments™) is a professional investment management organization that manages the Fund in the best interest of the more than 20 million contributors and beneficiaries of the Canada Pension Plan. In order to build diversified portfolios of assets, investments are made around the world in public equities, private equities, real estate, infrastructure and fixed income. Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, San Francisco, São Paulo and Sydney, CPP Investments is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. At June 30, 2021, the Fund totalled C$519.6 billion.
For more information, please visit www.cppinvestments.com or follow us on LinkedIn, Facebook or Twitter.
About Round Hill Capital
Round Hill Capital is a leading global specialist real estate investment, development and asset management firm. Since inception in 2002, Round Hill Capital has acquired and repositioned for long-term institutional ownership over 135,000 residential units and student housing beds. With our specialist Student Accommodation Operating Brand, Nido Student, we operate over 5,000 beds across Europe with over 3,000 under development.
Round Hill Capital is a responsible landlord of assets offering housing to a range of occupants, from students through to senior citizens. Round Hill Capital has an established track record and asset manages real estate on behalf of some of the world’s leading institutions and private investors.
Further information on Round Hill Capital is available at: www.roundhillcapital.com.
About Nido Student
Nido Student (Nido), is the award-winning purpose built student accommodation (PBSA) operating platform of Round Hill Capital. Attracting students from more than 100 countries and over 150 institutions, Nido manages over 5,000 beds across the UK, Germany and Ireland.
Its reputation as an insights-driven and customer focused business has led to the seamless expansion into Europe in the past two years. This growth will continue in 2022 with a further pipeline of 3,000+ beds in Ireland, Germany, Portugal, and Spain.
With over a decade of experience and a firm focus on the wellbeing and experience of its residents, Nido is the operator of choice for both students and investors. Further information is available at www.nidostudent.com.
This is a huge deal for CPP Investments and this joint venture with Round Hill Capital will allow it to invest in the growing European purpose built student accommodation (PBSA) market.
Earlier this summer, Ricardo Del Bello of the interior design consultancy A Designer at Heart, put out an interesting blog comment going over PBSA market growth in Europe:
Through new PBSA projects and developments, we noticed how new markets have started growing rapidly. So, this week we thought it'd be interesting to have a look at what is happening in the PBSA market and how it is changing with the activities in new markets in Southern Europe. We started from a document published by the research and consultancy firm Bonard investigating the key differences between the average and premium segments of the PBSA market. The study focuses particularly on the amenities and facilities offered by different brands in different countries.
This is an important topic as it could hide crucial insights for developers and designers on the direction that some countries with a less developed sector are taking. The wider market itself could very well be changing quickly with the aftermath of the pandemic.
The main factor to keep in mind when looking at this data is that there is a significant imbalance between markets, with some such as the UK that is almost saturated and characterised by a high level of competition. On the other hand, some markets, such as Spain and Italy, are still substantially underserved with the virus outbreak that, once again, has likely delayed their growth. So we decided to integrate this review with data from different sources.
Tier 1 and Tier 2 Cities Premium Vs Average segments
The Bonard report observes the differences in the PBSA market starting from the distinction between Tier 1 and Tier 2 Cities.
Tier 1 Cities enjoy a fully-developed real estate market, and high competition thanks to the appeal of their schools, universities and facilities. Differently, Tier 2 Cities, are the up-and-coming ones. Markets not yet fully served, that present important opportunities for growth both thanks to lower costs and unbalance between offer and demand.
The distinction is usually also extended to the population difference between cities. This is naturally relative to the country analysed. In China, Tianjin and Suzhou, two cities that both count well over 10 million citizens, are considered tier 2 cities. In Europe, instead, tier 2 cities are the ones that count less than 1 million residents or even less than 500,000. Examples of European and UK tier 1 Cities are London, Paris, Berlin, Amsterdam, and Milan, while tier 2 ones are New Castle, Warsaw, or Padua.
Source: Bonard
The first graph shows how in larger cities, top-end student accommodations tend to include a wider variety of facilities. Instead, where the average ones score a higher percentage, most of the time is for those facilities that require a lower budget but still allow for group activities, even though there are some particular pieces of data, such as the ones about auditoriums/music rooms and tennis courts. Also, Bonard's report highlights how none of these facilities is offered in regular properties for rent.
Similar to the last two results for tier 1 cities, some of the ones in the second graph might seem counterintuitive. This could due to two main reasons.
First, while highly specialised, and more expensive spaces, such as gyms are more common in premium PBSA, the difference is less evident in the second graph. This could be due to a skewed proportion between the two types of accommodations in the different cities. Having just a percentage we could assume that while big brands are more present in big cities, less competitive, and smaller cities attract a higher number of smaller, average-level brands. The same, in fact, happens to multifunctional rooms, which are less in tier 1 cities’ PBSAs, but more in tier 2 ones. Bonard’s report, however, points out how multifunctional and flexible spaces tend to be more popular in lower segments’ products as they allow for a variety of activities with a much lower cost for developers.
Secondly, more expensive and focused facilities could be available more frequently in average PBSAs of tier 2 cities also because of generally lower costs of materials and labour compared with larger cities.
The same differences in the two graphs, in fact, appear also for Laundry Rooms, Bike Storages, Multifunctional Rooms, TV Rooms, Game Rooms, and Libraries.
One interesting takeaway then is that depending on the target audience, a wide range of services can be implemented even within a less expensive project. Tier 2 cities, with less competition and less expensive schools and facilities, provide a thriving market for more average PBSAs. Similarly, more appealing, tier 1 cities are the high-net-worth individuals’ target, making them more difficult for less expensive brands to develop the same kind of offer that larger firms have.
Different Cities Different Services
A second part of the report is dedicated to the popularity of various services and facilities in the different cities.
Here too there are a lot of interesting insights regarding major cities markets. Also, to these two graphs, we could add some variables that would help us get some interesting conclusions from the analysis. I’m talking about market saturation and growth opportunities.
Part of the differences between cities is arguably due to cultural factors. One above all is the “full board” in Italian and Spanish PBSAs, both countries where usually it’s given a higher value to meal sharing moments. However, we can integrate the data with a graph realised by Deloitte analysing some national markets’ sizes in terms of students' overall volume, the number of beds, and ratios between the two.
The image below shows how the UK, the Netherlands, and France have a much higher number of beds per student. This can lead to two conclusions. The first is that Germany and Spain are both underserved compared to the other three. As for Italy, according to related research by Savills, the difference is even bigger. While the provision of PBSAs is highest in the UK, with almost 30% of students staying in accommodations, Italy has the lowest percentage with less than 5%.
Source: Deloitte
After looking at this then, one important factor is that, like for the first two graphs, the percentages could be skewed. So the higher amounts of almost all the facilities offered in Spain and Germany could be due to the lower overall number of PBSAs. The same goes for the services shown in the second graph for Spain and Italy.
But here is where it gets interesting.
These underserved markets, undoubtedly present a great opportunity for growth, even if they happen to be less appealing than others overall. So, the reason for this higher variety of services is arguably also down to the later development of the facilities.
In many sectors, customers are getting more demanding, and PBSA is no exception. Over the last few years, facilities, services, and points of contact have become more complex. So, ‘younger’ markets might represent an important indication of the direction of the industry, and the services that seem unnecessary now could become expected by residents in the future.
Takeaways
- Tier 1 Cities are more competitive with prestigious brands offering a wider variety of dedicated spaces. Here Gyms, Games, and TV rooms make the biggest difference between premium and average PBSAs
- Average brands can cater to similar needs through flexibility and multifunctional spaces
- Tier 2 Cities show more variety, with more space for smaller brands, and lower prices make it easier to plan a wider offer of spaces and services for students
- Cultural factors influence the residents' expectations in different national markets
- Less saturated and younger markets still have significant growth potential
- New markets' PBSAs and more recent projects could also be an indication of trends for spaces and services that even if slightly unusual now, could become fairly common in the future, due to an increasingly demanding customer base
This is an interesting comment but here's my take, whether it's saturated or not (highly debatable), the UK will always lead the European PBSA market for a simple reason, it is home to some of the best universities in the world and offers a great education to those wanting to study at an English university abroad.
Sure, there are under-served markets in Tier 2 cities but unless you create Oxford and Cambridge campuses in Warsaw or Padua, you will never get the demand to fill those beds.
The UK remains the global leader in student housing and the US is also a huge market.
And it's not just CPP Investments getting into the space.
In August 2018, PSP Investments and Allianz completed a £1.5bn London student housing platform JV which you can read about here.
What is the attraction to student housing for large Canadian pensions?
Put simply, it's a burgeoning real estate sector, maybe not as hot as logistics but the secular headwinds remain strong and it's is less cyclical, meaning demand will remain relatively strong regardless of the market cycle.
There are a few secular headwinds:
- Emerging markets aren't really emerging any longer. The middle class in India and China are growing and the elites and even middle class in these countries want their children to study abroad at elite universities in the UK or US (Canada is a distant choice but still up there).
- Rising inequality continues all over the world, bolstering demand for elite universities.
- Parents want their children to study in a safe and secure environment with all the amenities and more they can enjoy at home.
- Lastly and most importantly, competition for elite universities is only heating up, demand to study abroad will remain very strong.
All this to say, for a large pension fund not to have a decent allocation to student housing as part of its real estate assets is just totally insane to me.
This is a great sector for long-term investing BUT you need to partner up with the right partners or else you risk not getting the required returns.
And here CPP Investments partnered up with a great partner, Round Hill Capital.
Founded in 2002, Round Hill Capital is a vertically integrated real estate investment, development and asset management firm leading the way in the real estate accommodation sector.
I really like what Andrea Orlandi, Managing Director, Head of Real Estate Europe, CPP Investments, said about this deal:
“Demand for high-quality student accommodation in many European countries is underpinned by structural changes, including increasing tertiary education participation rates and increasing international student mobility, but is contrasted by limited current supply. Our new partnership with Round Hill Capital will increase our exposure to this asset class across European markets, leveraging their deep sector knowledge and insight to meet the needs of students and drive long-term value for CPP contributors and beneficiaries.”
I also like what Brian Welsh, Head of Student at Round Hill Capital, said in the press release:
"There are unprecedented levels of capital looking to invest in resilient income streams, but the challenge many will face is having access to deal flow and having the market insight and data to extract maximum value. Our long track record in this sector and local presence in core European markets has helped us establish a market-leading position over many years.
"We are seeing significant scope for growth in many markets and together with our student operating platform, Nido, we have the track record to navigate the nuances that define many different cities across Europe. High quality housing remains in short supply in many locations and while much more can now be done online, the need for face-to-face engagement and the desire for a world-leading education will continue to drive customer growth across key markets."
If you are to invest in student housing, you'd better do a joint venture with the right partner.
CPP Investments has done so, this is a fantastic deal which will pay handsome dividends for generations of Canadians counting on their CPP to retire in dignity and security.
Below, GRI interviews Paul Bashir, COO, Round Hill Capital for his insight into the student housing market and where he expects this segment going in London and rest of the UK (2018).
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