Asian investors watch past disruptions in student housing

Craig Carracher, chairman and co-founder of Sydney-based Scape Australia, agrees, saying in a podcast this month with Ready Media Group “We’re obviously above what I would call a pain threshold. in our area, what I think for purpose-built student housing is that 40% to 45% net occupancy range, where we’re starting to feel pain. “

“At 50% and above, because the margins are there and we have been able to reduce our operational base while continuing to provide our service standard as well as making agreements in various places with how these buildings are used,” I think most of our sector was able to navigate safely in 2020, ”said Carracher.

Safe, maybe, but not necessarily cost-effectively, analysts say.

“This occupancy rate assumes no or minimal operating profits,” noted an investment consultant in the region, who declined to give his name.

And depending on an operator’s debt structure, banks could recall loans long before a company’s operating profits evaporate, the consultant said. The lockdown moratoria in place now could rule out that risk for the next six to nine months, but “in the longer term, that’s a guess,” the consultant added.

Meanwhile, some industry veterans note that operators like Scape must have been opportunistic to maintain that 50% occupancy rate.

For example, operators have moved from a pure focus on student housing this year and have rented facilities from the government for “social housing” for the homeless or for victims of domestic violence, noted Paul Gately, director. Sydney-based general and head of Australia. for Baring Private Equity Asia Real Estate.

For investors in these properties, the current year must be close to a “cancellation,” Gately said, adding that with so many recent investments made at the “top of the market,” investor returns will be. impacted.

Net returns from investors in student housing, before leverage or rental gains, could fall to about half of pre-pandemic levels in the short term – to about 3% from 5% or 6%, said Henry Ching , head of Asia Real Estate at Mercier Investments.

Still, market veterans note that the tough times the industry is going through this year don’t offer much for bargain hunters.

“While we would have thought there would be more dislocation in the market and more problems around it, the longer term nature of the capital that supports these coins (has meant that there has been) no real distress or pricing error, ”said Ruban Kaneshamoorthy, Sydney-based senior vice president of real estate, with Brookfield Asset Management.

Brookfield is a seasoned investor in student housing in Europe and Mr Kaneshamoorthy said his team were following opportunities in Asia Pacific with interest but had yet to invest in the region.

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