Student housing is a segment of the real estate market that provides consistent returns with low volatility, said John Kennedy, founder of Coral Portfolio, speaking at the FSA Forum.
The proposition is a straightforward play off the growing imbalance between supply of student housing and demand, he said.
Globally, the student population increased to 183 million from 2011 from 76 million in 2001, and the next ten years the forecast is a 100 million increase, he said.
Taking the UK model global
Coral Student Portfolio invests in student housing accommodations that are “run like mini-hotels” with carpark, laundry facilities, internet and perhaps bus transport, he said. It has been active over the last decade in the UK and more recently in London, but Kennedy said the target now includes main university towns globally, with a focus on institutions awarding core degrees in medicine, law and science.
For example, it about to invest in Dubai’s first-ever private built student rooms, he said.
“If you have experience with the UK model, it is relatively easy to replicate that in other jurisdictions.”
The growth of the university student population in emerging economies over the past 10 years has been 8% annually compared to 2.8% in developed countries, Kennedy said. Governments in the developing world understand that university education is a key to economic growth and are providing incentives for education.
Risk is largely from the management of the properties, which Coral addresses by taking a seat on the board and perhaps asking for director guarantees, he said.
The fund is talking to institutional investors, who Kennedy said are active in the UK student accommodation market because of the predictability of returns and stability of the asset class, which has been going for 10 years.
Farm equipment needs
Another niche investment area is asset finance for UK farms, which has been drying up for various reasons, said Craig Reeves, founder of Prestige Asset Management, also speaking at the FSA Forum.
“In the UK you have a strange situation. Equities and property markets are rising yet access to credit is contracting.”
In Q1 this year, credit contracted by $1bn, Reeves said.
The banking industry is faced with higher capital requirements, lower share prices and in some cases litigation, all of which limits the breadth of loans they can provide.
Therefore, diminishing credit is available to UK farmers, who must consistently invest in equipment and vehicles while dealing with the rising costs of energy and waste disposal.
“Banks are still lending to farmers, no doubt. But the criteria is higher and rules are stricter and less is being lent.”
Prestige Alternative Finance invests in high-rated credit-scored loan and lease agreements in the UK, particularly among the farming community. Reeves said institutions are interested, and the fund recently picked up two Middle Eastern pension funds.
Alternative fixed income investors are attracted “because of the fund’s non-correlated assets, low volatility and consistency of returns”, Reeves said.
The asset invoice team has done 15,000 loans to the farming community in last 10-12 years and the average invoice is $10,000. “The average loan is less than 0.05% of the net asset value of the fund,” Reeves said.
He added that investments in asset financing as well as invoice financing – another area Prestige focuses on – did not have any issues during the global financial crisis.
