International finance centres and the student accommodation opportunity
Jonathan Heaney (pictured), a partner with international law firm Walkers in Jersey, says the collaboration and flexibility available in the island hold the key to attracting private investment structures to capitalise on one of the few investment areas consistently to deliver capital growth and steady income in recent years.
Higher education in the UK has become synonymous with spiralling costs in recent years. Few if any participants in the debates on the levying of tuition fees, the cutting of non-repayable maintenance grants and the appropriateness or otherwise of calling student loans ‘debts’ would claim that higher education is likely to deliver short-term financial dividends for the majority of students.
This is not the case, however, for investors where student accommodation is concerned. Despite the increased cost of a university education, numbers of both students and universities themselves have grown steadily growth over the past.
The rise in student numbers, coupled with a growing trend for students both in the UK and elsewhere in Europe to move away from home where necessary to find the best course for their chosen field has led to an inevitable increase in demand for accommodation to house this demographic.
As a result, there has been a surge in investment by both developers and speculators in student accommodation and educational campus facilities projects. We are now in the age of the urban student village with the attendant blurring of boundaries between town and gown. Planners who previously left the cohabitation of student residential and commercial activity to evolve organically now orchestrate the systematic and staged integration of living and working environments.
The success of such projects in numerous UK and European cities has influenced the development of a market in which student accommodation as an asset class continues to outperform every other type of commercial property. It is proving its worth as a source of both capital growth and consistent income for investors in a market environment dogged by lingering recession and uncertainty over economic recovery.
Studentaccommodation now appears an alternative to more traditional commercial real estate as investors and managers seek both to mitigate the erosion of their assets by the parlous state of international markets and at the same time obtain consistent income returns.
The body of evidence to support this case is strong. The Mansion Student Accommodation Fund, an investor in purpose-built student housing across the UK, has seized the opportunity to deliver investor yields well in excess of 10 per cent. The Unite UK Student Accommodation Fund, which owns student accommodation properties in 23 UK cities, has seen the aggregate value of its rental properties under management soar from just under GBP800m in 2008 to GBP1.2bn at the end of June this year.
These funds and others of their ilk have a voracious appetite for new student developments as building programmes continue nationwide. In addition to new developments, they invest in commercial buildings that have received planning permission to be converted for student accommodation. The barriers to investor entry into such funds are often low; charities, companies, trusts, offshore bonds and other investors can access opportunities through initial investments of as little as GBP10,000.
The story doesn’t end there, however. In the past year, student accommodation has been a topic of conversation in professional advisory circles in Jersey as never before. Amid a surge of interest in private investment structures funded by a mix of traditional bank finance and a small number of high net worth individuals or family offices, often structured as a joint venture with the developer, demand for investment in student accommodation has burgeoned as a source of inordinate growth and yield opportunities at a time when traditional investments offer little bang for your buck.
This demand is global, with private investment from the Middle East and Asia joining European investors. The onus is falling on Jersey’s advisory community to ensure that suitable structures with appropriate regulatory oversight are available and can be established easily and quickly to meet this demand.
As an international finance centre with a proven track record in real estate acquisition and financing structures and a jurisdiction whose structures are very familiar to and accepted by mainstream lenders, Jersey is positioned very nicely to service this market.
Collaboration across the Jersey advisory community, encompassing the regulator, bankers, accountants, administrators and trustees as well as lawyers such as myself, is an essential component to turning expressions of interest in this opportunity into the establishment and successful launch of a new private investment structure domiciled on the island.
Being blessed with an abundance of experienced and professional service providers, Jersey is not simply a domicile for the acquisition vehicle but a jurisdiction where business is actually transacted and the structures serviced.
The island’s credentials-based narrative is also strong. It is well established on the OECD’s white list group of international finance centres to have implemented internationally agreed tax standards. A peer review facilitated by the OCED Global Forum described by Jersey’s tax information exchange agreement network, regulation and policy-making practices as “responsive and co-operative” in their approach.
This sense of responsiveness, along with a commitment to appropriate regulation for the current economic climate and the sophistication of the underlying investor, is crucial to the success already enjoyed by Jersey in this sector, and is vital in enabling the island to become and remain the international financial centre of choice for private investment structures seeking to capitalise further upon the student accommodation opportunity.
Ensuring that the legal and regulatory frameworks remain flexible enough to accommodate new structures while not compromising on the assurance that Jersey vehicles conform to both international standards and investor and banking scrutiny is paramount. As things stand, Jersey ticks all the boxes both as a domicile for structures and as a service centre for this sector.
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