London—Greystar, the largest operator of apartments in the United States, recently acquired a student-housing portfolio in the U.K. MHN talks to Bob Faith, founder and CEO of Greystar, about this international investment strategy, and the challenges they faced.
MHN: Describe your new student-housing portfolio in the U.K.
Faith: Greystar has worked diligently on a transaction to acquire The Opal Group portfolio since mid-March; shortly thereafter, the assets were placed into Administration and are in the process of being sold by Opal’s various lenders and their respective Administrators. Greystar’s first purchase in the U.K. was a portfolio of 21 assets (6,900 beds) that were sold out of the RBS administration process. This particular pool of assets is well diversified by both geography and income stream while also providing exposure to sub-markets in major university cities such as London, Manchester and Leeds. Often times, assets sold pursuant to bankruptcy or administration related processes are broken in some way shape or form. The pool of assets we’ve purchased, however, suffered primarily from an overleveraged capital structure at the parent group level, as opposed to obsolescence at the asset level. With that said Greystar will invest heavily in these assets to bring the very best of the amenities and living experiences, similar to what we have done for the assets we own in the U.S.
MHN: How does the global student market compare to the U.S. market?
Faith: Much like the U.S., the U.K. has been a beneficiary of an increasing number of university students choosing to study outside of their birthplace; it’s ranked second behind the U.S. as the most popular destination for overseas students, mainly from non-European countries. Between 2002 and 2009, global international students in secondary educational institutions increased from 2.1 million to 3.7 million [according to Organization for Economic Co-Operation and Development (OECD)]. On average, 75 percent of these students choose English-speaking countries such as the U.S. and U.K. Jones Lang LaSalle predicts that by 2020, more than 7 million students will study in a country different than their own.
Domestic and international applications to UK institutions have been strong since the 2007/2008 academic year, with applications up 22 percent and accepted applicants up 12 percent over a similar period. However, isolating just international students, overseas applications are up over 50 percent between 2009 and 2013. While the U.K. is second to the U.S. as a recipient for international students, the U.K. has steadily gained market share, with the U.S. market share declining. We believe the increasing demand for an English-speaking education will continue and plan to develop a large portfolio of assets that will attract sophisticated consumers seeking a better experience during their time at school.
MHN: What challenges did you find?
Faith: The challenges we found were not only the normal logistical and reputational challenges that any company would face looking to build a new business abroad, but we’ve had to work extra hard to develop an understanding and appreciation for cultural demands and sensitivities. While we can surround ourselves with folks to advise us on tax-, legal- and jurisdictional-related issues, we’ve needed to work quickly to build a new network of relationships, both with industry counterparts and vendors, and also begin the process of hiring local professionals to join our team. Greystar has a long history and commitment to having local professionals run our local businesses. This commitment is underpinned by our investment in a new London-based office and the work underway to recruit local professionals to help build our property operations platform.
MHN: Do you have more plans to acquire international portfolios? Why or why not?
Faith: Our team is working hard to acquire additional portfolios and develop a world-class brand in the U.K. We view this market as a huge opportunity for a well-capitalized owner/operator like Greystar to leverage 20 years of operating assets to improve the experiences students have living and studying in the U.K.