Private investors will soon have another way to invest in the booming student housing sector. Specialist fund manager Gravis Capital Partners (GCP) is currently raising money for Britain's first real-estate investment trust (Reit) to focus exclusively on university digs. It is expected to generate a rental yield of 5.5 per cent, with rents - which drive dividends and property values - rising roughly in line with RPI inflation.
Called GCP Student Living, the fund will be seeded with a £93m student accommodation block opposite Queen Mary University in Mile End. Fund manager Tom Ward wants to collect at least £50m from shareholders to finance the purchase; debt will cover the balance. He will raise further equity as and when further acquisitions become available. This removes the risk that cash raised speculatively will act as a drag on returns.
The company that built and manages the Mile End property is called Scape Living. A joint venture between directors at GCP and two other investment companies, it is currently developing blocks in Greenwich and Shoreditch, which GCP Student Living will have the right to buy.
The cosy relationship between GCP Student Living and Scape Living is a potential concern. Investors need reassurance that Mr Ward is not using their fund, whose acquisitions strategy he controls, as a dumping ground for the properties built by Scape, of which he is a partner. Mr Ward has tried to deflect criticism by appointing property broker Knight Frank to determine independent purchase values. He also stresses that the Reit has a "heavyweight" board headed by Robert Peto, who was chairman of broker DTZ from 1999 to 2009 - though since DTZ went bust in 2011, wiping out shareholders, this is not hugely comforting.
Another risk is that the student accommodation market overheats after a period of very strong performance. Mark Allan, chief executive of Unite Group, believes London's mid-market has become oversupplied - a fact he uses to explain the 14.4 per cent slide in the value of Unite's joint venture with Oasis Capital Bank last year, for example. Mr Ward naturally disagrees, pointing to a lack of studio provision, in particular. Scape East - as the mid-market Mile End development is called - is fully booked for the current academic year (its first).
