Lessons from around the world

During the INREV Annual Conference earlier this year we interviewed Bob Faith, CEO of Greystar but for those who missed it, IQ recently caught up with him about the growing interest among investors in student housing across Europe.

Faith is infectiously enthusiastic about investing in residential and student housing, the asset classes his organisation has been targeting in America since the 1990s, and latterly in Europe, Asia and Latin America. ‘We like the fact that the demand for all kinds of housing is primarily driven by demographics rather than by the economic or business cycle. This means that it’s much more resilient than commercial real estate in times of economic downturn, particularly given its relatively stable long-term income return. Yet, in spite of these defensive qualities, so far institutional ownership in the sector has been quite limited. That was certainly the case when Greystar first entered the US multi-family market and US student housing in the 1990s.’

We like the fact that the demand for all kinds of housing is primarily driven by demographics rather than by the economic or business cycle

‘But we’ve come to realise that the defensive characteristics of student housing are ones that large international investors – principally sovereign wealth funds and the larger pension funds – are becoming increasingly aware of and would like to benefit from. And as their investment strategies have grown more and more global over the past decade, their interest in the housing sector has spread from the US to other regions, particularly Europe.’

Faith explains that Greystar has leveraged its relationships with large investors to partner with them investing in European student accommodation. ‘It has been the right time to do this, as globalisation among investors has been mirrored by the globalisation of student populations,’ he continues. ‘At the same time, there have been big opportunities for blue-chip companies to bring institutional quality development, management and investment to large-scale residential and student projects, as up to now ownership has been relatively fragmented in many European markets.’

Greystar believes it’s critical to have boots on the ground before starting to develop large scale student housing projects, as you need to match the knowledge of local players if you want to compete with them

‘The UK was our entry point to the European student housing sector, but we now also have a presence in the Netherlands, Spain and Germany, and we most recently entered the French market. The aim has been to extend coverage across the “core” international student locations in the western part of Europe, those countries that have a strong educational tradition. In many cases, this means cities with long-standing, historical universities, the likes of London, Paris, Amsterdam, Frankfurt, Berlin, Munich, Madrid and Barcelona.’

‘We are aware that investors are also keen to move into the Italian market, but we don’t yet have a presence there,’ Faith concedes. ‘Greystar believes it’s critical to have boots on the ground before starting to develop large scale student housing projects, as you need to match the knowledge of local players if you want to compete with them, especially in terms of the tax, regulatory and cultural environment. That was why we acquired the Resa business before entering the Spanish market and recently completed the acquisition of Activa in France.’

‘This not only reflects the fact that you need local knowledge when developing, but also the operational intensity of student housing, something that applies even more strongly than for residential assets. For one thing, student housing has more tenants in proportion to the size of a building than traditional residential does, while they also require a much wider range of support services and demand more from the building’s common areas. We provide a wide choice of programmes for students to foster a sense of community in our projects, an aspect that is particularly valued by those studying in a foreign country. External students make up the majority of our occupants.’

You can argue that commercial real estate just needs good facility managers to succeed, but you can’t get away with that for residential, even less for student housing

Faith says that Greystar have learned to be fanatical about customer service in the American residential and student businesses, and this has stood them in good stead for developing similar operations in Europe. ‘You can argue that commercial real estate just needs good facility managers to succeed, but you can’t get away with that for residential, even less for student housing. Yet if you work at scale, you can then find the resources to provide excellent customer service as well – you don’t really have any choice if you want to be successful in this sector.’

These may be some of the secrets of Greystar’s recent success in student housing, but what will be the recipe for the future? Faith notes that one important factor is likely to be the technological sophistication of student tenants. ‘Highly-educated individuals in their late teens and early twenties run their lives on their digital devices,’ he insists, ‘so it’s crucial that they can organise their accommodation and be kept informed of what’s going on via their smart-phones. One of our managers recently pointed out that students can cope with having no water for a few hours, but it’s a completely different story if the Wi-Fi goes down. The industry now has to run faster and faster to keep up with technology.’