Investing in student accommodation is a popular way of investing in the property market. It is a buy-to-let investment that has fewer voids than traditional investments and has a quantifiable and growing demand. Many investors however do not wish, or are unable, to own properties outright, unable to get a buy-to-let mortgage arranged or want to deal directly with students or letting agencies. This is where the student accommodation investment fund comes in.
Student accommodation investment funds provide an indirect way to invest in the student accommodation market.
The Mansion Group launched a Guernsey-based Student Accommodation Fund in December 2009 with their purchase of St. Andrews Gardens in Liverpool, a purpose built student hall of residence with 421 beds spread across 96 flats. The purchase was supported by a mix of debt funding from Barclays, which has supported The Mansion Group on all of its acquisitions to date and equity raised through IFAs. The initial yield for St Andrews gardens was 7%.
Investment in this sort of fund is more interesting to investors looking for capital growth rather than a regular income. The Mansion Group plan to reinvest surplus rent returns into more projects for the future. Ultimately the fund aims to acquire and manage a portfolio of leasehold properties across the UK’s top 30 towns and cities (as measured by student population). It has an ongoing target internal rate of return of 10-12% per year.
The Mansion Group see this investment as long term, based on the growing demand, linked to an increase in students being given university places, and which the market is struggling to supply. According to a Savills market report, the UK market for private student accommodation was worth an estimated £6.6billion in 2007, and is projected to grow to over £20bn by 2015.
Because of this demand, student housing has stayed strong at a time when other commercial properties have been hit by the economic downturn. To back this up, over the past 12 months the Mansion Student Accommodation Fund has returned over 18%; a good return compared to the FTSE 100 which returned less than 1% over the same period.
Campbell Property Student Accommodation Investment Fund (Birmingham) LP
This is another much smaller fund which only concentrates on Birmingham and is to mature in April 2013. This fund was launched in March 2007 on the basis of acquiring existing houses which would be suitable for conversion to student accommodation and that were situated close to Birmingham colleges. The fund has a dual purpose to identity, purchase, develop and let out properties in order to create a strong income flow from the students and also for those properties to be situated in areas in the process of regeneration so that capital growth is also a factor in the overall returns of the fund.
In theory, investing in a student accommodation investment fund should be less risky than traditional buy-to-let investments as the lease holders are responsible for maintaining the property and collecting rents. For people who like the figures and want to get involved in student accommodation but don’t want to be a landlord, student investment accommodation funds may well be the answer.
More detailed article on student housing investment.