Blackstone’s Plan to Take ACC Private

Tooker House at Arizona State University, an ACC property. Photo by Bill Timmerman

In 2004, American Campus Communities became the first publicly traded student housing company. In recent years, it has been the lone student housing REIT as the company led by Founder & CEO Bill Bayless grew to own 166 properties with approximately 111,900 beds and own and manage a total of 203 properties with about 140,900 beds. ACC is soon expected to go private as part of the U.S. student housing platform of global investment giant Blackstone.

In a blockbuster deal announced Tuesday, Blackstone affiliates entered into a definitive agreement to acquire ACC in an all-cash deal that values the student housing company at $12.8 billion. The Blackstone vehicles, consisting primarily of Blackstone Real Estate Income Trust (BREIT) and Blackstone Property Partners (BPP), will pay $65.47 per fully diluted share, including the assumption of debt. The transaction, which needs shareholder approval, is expected to close by the third quarter.

In a letter to ACC employees, Bayless described going private as “the right strategic decision.” He noted that in the past five years the public equity markets have “been quite cyclical and at times our public cost of equity has been more expensive than private institutional capital.” Bayless stated that during those periods many of the REIT’s private peers were able to “execute entrepreneurially in the areas of acquisitions and off-campus development, more aggressively than our cost of public equities permitted.”

Bayless called Blackstone a “natural partner” and said Blackstone’s “financial wherewithal and perpetual capital” will give ACC the access to capital to increase acquisitions and off-campus development activity. ACC’s portfolio comprises properties in 71 leading university markets, including Arizona State University, The University of Texas at Austin, Florida State University and the University of California – Berkeley. The majority of the assets are within walking distance of university campuses, with about 24 percent located on campus.

Jacob Werner, co-head of Americas acquisitions for Blackstone Real Estate, cited ACC’s best-in-class portfolio and longstanding relationships with some of the nation’s most distinguished and fastest-growing universities. He also referenced Blackstone’s “perpetual capital” and said it will enable ACC to invest in its existing assets and create much-needed new housing.

Major Shifts

In a November 2021 research paper, Dave Bragg and Jared Giles of commercial real estate analytics firm Green Street outlined the shift of big private equity firms like Blackstone into more perpetual capital strategies. With more assets under management and longer hold periods, the private equity firms can capitalize on benefits of scale and focus more heavily on operations.

When BREIT acquired Home Partners of America, a single-family rental company with more than 17,000 SFR homes last year for $6 billion, it stated its investment in HPA would be supported by perpetual capital that would allow for a long-term approach to managing the properties.

HPA was just one of Blackstone’s numerous investments in residential real estate in the past year. In February, BREIT announced it was buying Preferred Apartments Communities, a multifamily company with 44 properties and approximately 12,000 units, for $5.8 billion. Also in February, a joint venture between BREIT and Landmark Properties acquired a four-property student housing portfolio with 2,248 beds in assets in Tier 1 markets. That deal was part of a $784 million JV announced in August to invest in eight student housing properties totaling 5,416 beds across the U.S.

“Blackstone’s acquisition of ACC is another notable example of the company focusing on non-traditional formats (such as lab space, student housing, data centers, single-family rentals etc.) rather than bottom fishing in traditional property such as enclosed malls and office assets, which trade at wider discounts to net asset value, but have more challenging fundamentals,” Stephen Boyd, senior director, US Corporates, at Fitch Ratings, told Multi-Housing News.

Michael Knott, managing director, head of U.S. REIT research, Green Street, told MHN, “Blackstone has a host of platforms across sectors and emphasizes its portfolio companies, so clearly the ACC platform will become an enviable part of the Blackstone family of companies.”

Student Housing Rebounding

Leasing at student housing properties and investment sales slowed during the pandemic as enrollment in U.S. universities dropped but the market has been rebounding as students returned to campus, particularly at Tier 1 and Tier 2 schools. A March report from Berkadia’s student housing team stated total investment sales reached $9.6 billion in 2021 as new capital began flowing into the sector from foreign and domestic capital sources. Berkadia said there had been a dramatic rise in portfolio sales, which accounted for $3.5 billion of the overall market transaction volume, up significantly from 2019 and 2020.

The Yardi Matrix National Student Housing Report released in January noted that rent growth at the Yardi 200, the top 200 investment grade universities, was robust amid strong preleasing for fall 2022. Six universities with four or more properties had double-digit annual rent growth as of December. Rent growth is approaching pre-pandemic levels, Yardi Matrix reports, with the average rent per bedroom as of December increasing by 2.2 percent over the previous year and just a bit below 2019.

“Student housing has always been a steady business and not economically sensitive, i.e., prone to inflationary pressures, geopolitical strife or stock market volatility. It has won over the confidence of institutional investors, and clearly it’s a sector that has gained Blackstone’s confidence in a large way coming out of the pandemic,” said Knott. “Prospects remain strong in the student housing sector for the rest of 2022.”

Christopher Merrill, co-founder, chairman & CEO of Harrison Street, which has invested more than $18 billion in the student housing sector since 2006, said there has been growing interest from large institutional investors seeking access to the student housing space.

“We expect there to be continued long-term interest in the student housing sector due to its proven resilience through black swan events such as the pandemic and global financial crisis, the importance students and families place on in-person learning, and it’s stability relative to more traditional asset classes like office and retail,” Merrill told MHN.