£10m drive to expand student accommodation portfolio in Manchester
A £10m fundraise is being used to purchase 27 homes in Manchester for student occupation.
Student Tribe was established in 2016 by chief executive Calum MacInnes in response to the often poor standard of privately-owned shared student housing he saw when his children went to university.
Its portfolio currently comprises 15 properties in Leeds, Manchester and Birmingham, and the deal with specialist private client investment business Connection Capital will enable it to acquire a substantial portfolio of 27 homes in Manchester.
Connection Capital clients have invested in Student Tribe, which purchases shared student houses, previously known as houses of multiple occupation (HMO), and refurbishes them where necessary to a good standard, as well as letting and managing them afterwards.
Student Tribe aims to continue adding to its portfolio over the next five years to build a brand with scale in an otherwise fragmented market. It expects a good pipeline of prospective acquisitions as smaller players exit the market, due to increasingly onerous HMO licensing requirements.
Connection Capital says its clients saw the opportunity as an attractive way to gain exposure to UK residential property, especially now that changes to the tax rules on buy-to-let have increased the pressure on the returns individual investors can generate.
The Student Tribe investment offers investors both the potential for income and asset-backed capital appreciation. The combination of high tenant demand, limited stock, one-year contracts and the ‘guarantor’ system, whereby rental agreements are underwritten by parents, also means that void periods for good quality student HMOs are generally very low.
While the purpose-built student accommodation (‘PBSA’) market, focusing on halls of residence for first-year students, has matured, making accommodation higher quality, the HMO market – the typical target for second year students and upwards – has attracted much less institutional capital.
Student Tribe believes that there is a window of opportunity for those with the skill, expertise and funds to acquire these privately-owned properties on a piecemeal basis and build a solid portfolio of income generating assets, pioneering a new model in the market.
Claire Madden, managing partner at Connection Capital, said: “This is an emerging asset class that has really resonated with private investors.
“Now that the buy-to-let tax regime has become more onerous, this deal offers an alternative and rewarding way to invest in residential bricks and mortar. By backing an established operator in the in-demand student homes market, the opportunity is expected to generate impressive returns via income yield and scope for capital growth.
“It’s also yet another chance for our clients to access a strategy that’s relatively uncorrelated to movements in mainstream asset markets.”
She added: “Student numbers have remained robust even during the financial crisis and recession and despite rising tuition fees. And while returns do have some correlation to the UK residential housing market, more stringent HMO licensing restrictions have created limited supply, making HMO values more resilient to market downturns.
“Assets like the Manchester portfolio Student Tribe is acquiring rarely come onto the market, so this is a significant opportunity for the business to achieve scale efficiently.”