University & Housing Partnerships: Friends with benefits

Universities and student housing providers share at least one important factor: their customers. Students all have to live somewhere during their studies, but the way residential life and academic life are connected varies incredibly throughout the world. Many countries in Europe take an especially lax approach when it comes to accommodating their students. Wouter Onclin spoke with Carlos Cano and Sam Bailey Watts about ways for the private student housing market to partner with universities.

Student accommodation is scarce in many of Europe’s leading university cities. University websites are full of warnings about housing scams and tell students to start looking for a place to live early on. But that’s not exactly an easy task when you’re reading this in your bedroom in China and want to move to Stockholm. 

The marketing value of an ‘experience’

One of the answers to this problem might be not to go to Stockholm. Just like what has happened in the hotel industry, peer to peer sharing of experiences is growing quickly in the education industry. And a bad experience with housing resonates heavily. This means universities need to be involved in solving housing problems for their students in one way or another.

Partnerships between universities and housing providers are a good way for universities to provide students with more opportunities in the student housing market, while at the same time helping housing providers.

At the heart of the business

“Partnerships with universities are at the heart of our business model”, says Carlos Cano, CCO of RESA, Spain’s largest student housing provider. “Partnerships allow us to be marketed by universities as their official housing solution, which sends a message of security and trust to both the parents and the students” 

RESA’s typical deal with a university involves land. The company builds on land that is owned by the partner university. “The university lets us use their land while we build the halls of residence.” 

Special Purpose Vehicle

In the UK, UPP is the leading provider of on-campus housing. UPP’s strategy is based on long-term partnerships with universities for providing housing and non-residential infrastructure. UPP’s residences are not branded, but are presented as if the university owns them. “We help our partners to improve the quality of their estate and service levels, which in turn helps them to attract students in an increasingly competitive environment” says Sam Bailey-Watts, Managing Director Partnerships at UPP. 

“The arrangements that we make are bespoke to each partner, but a typical structure is based on the establishment of a Special Purpose Vehicle (SPV). As a company in its own right, the SPV holds the debt raised for the asset, which allows for the transaction to be accounted for as an off-balance sheet basis.” Explains Bailey-Watts. “Universities typically also generate an income from our transactions – resources they can invest in areas they find important such as teaching and research.”

Universities ask for affordable rents

Affordable student rents are the most important point of negotiation for universities entering these partnerships. RESA gives students of partner universities a discount on their rent, or provides them with extra services.

“In recent years, universities are beginning to see housing not only as a service to their students, but also as a source of income. Traditionally universities would let us use their land for free, but some have started to introduce annual lease fees on land deals,” said Cano. “But as this impacts our business model, it will eventually have its effect on student rents.”

Contributing to student success

Besides providing students with basic residential infrastructure, another reason for universities to engage in housing partnerships is the impact residence life can have on academic success. Research performed in the US consistently shows a clear correlation between the way students live and their success, both academically and socially.

Bailey-Watts: “Academic infrastructure is becoming a more important part of our transactions. Our residences will have a pastoral care team resident on site, allowing the university to roll out student experience initiatives in a residential setting, and UPP will enhance these programmes with our own range of activities.”

Cano: “We agree with universities on the type of social activities that we develop in our residence halls to promote a sense of community between residents.”

Attractive investments

The deals that UPP and RESA make with universities have a clear impact on their risk profile for investors. RESA’s brand features prominently on Spanish university websites, making booking a room just a click away from checking out your new university. As an on-campus housing provider, UPP’s occupancy rates are in excess of 99%, creating stable long-term returns.

RESA is part of AZORA, an investment management company, managing with over €3bn in assets. “The universities almost never get involved in the investment. Our role is to allow them to concentrate on their core business.”

UPP utilises a structured finance approach with tranches of senior and subordinated debt and equity. Bailey-Watts: “Senior debt was traditionally bank debt, however, UPP has worked hard over the last three years to bring institutional investment into the Higher Education market. The appetite from Banks still remains, however, tranche sizes, debt tenor and pricing has made it less attractive.”

Taking partnerships out of the comfort zone

Both UPP and RESA are considering international expansion strategies. The models seem attractive for both universities and investors. But despite the rapid internationalization in the academic world, the systems are still very much determined by local factors. Canos “It’s challenging to translate our model to other countries, especially with regard to the kind of partnership we have with universities.”

The international context might be challenging, but with an increasing pressure on universities to provide their students with a place to live as part of their ‘marketing package’; the opportunities there are to improve student experiences and performance with residence life programs; and the reduced development and operating risks that university partnerships present to housing providers, we are confident we will be hearing more about this theme in the coming years.

 

The article written by Wouter Onclin – Research & Programme Manager at The Class of 2020!

Posted in News.