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edition 5 (240)
May 2019

Digging those digs

Investment in the best student halls in Poland has an expected rate of return of around 6 pct

Rafał Ostrowski

Digging those digs
“We sell individual student rooms and apartments to individual investors and we also intend to develop part of the portfolio in partnership with institutional investors from outside Poland,” reveals Gracjan Kleger, the CEO and founder of Gent Holding

The Polish student residences market could be about to take off as the first Western investment funds arrive on the scene

The private student hall market in Poland had until recently been too small to attract foreign institutional investors, but this now all seems set to change. The first large portfolio has already been put together for the Student Depot platform, which is owned by Griffin. This will continue to be added to, but – and although the company has so far declined to comment on this – according to market sources negotiations are being finalised for its sale to a Western fund that believes it has identified a stable source of income in this sector in Poland. Gent Holding also has significant development plans based on the employment of Western capital, as it seeks financing from international institutional investors. Kamil Kowa, a member of the management board of Savills in Poland, says that right now many investors from, for instance, the UK, Germany, Austria, Spain, the US, Japan, Singapore, the Middle East and South Africa: “We will be hearing about the first few deals this year, I hope,” says Kamil Kowa. What are the minimum expectations of such large investors? “For many of them, assets containing less than 2,000 beds or a portfolio worth less than EUR 50 mln may not be interesting enough,” he adds. Admittedly, apart from the chain owned by Student Depot, portfolios of this size do not yet exist in the country, but if pipeline development projects are factored in, some rather substantial potential portfolios emerge.

Billions around the world...

The amount invested in student halls globally last year came to more than USD 17 bln – 2 pct less than in 2017. However, the problem is not any decline in investor interest but the reduced availability of the product. Student halls are, however, appreciated as assets by investors – as an acyclic product, since during downturns universities are often even more crowded than in more prosperous times. They also represent guaranteed income because parents are willing to make a long term investment in educating their offspring. So far, the only deals for finished buildings in Poland are the purchases of two student halls from local developers – one in Łódź and another in Lublin – by Griffin RE for its Student Depot network.

“It is not only student halls but also office properties that now have community managers who prepare sporting and cultural events for their buildings” - points out Jakub Bartos, the head of the residential department at Golub GetHouse

Its cheaper in Poland

An investor can expect a rate of return on the best student halls in Poland of around 6 pct – one of the highest in Europe. In the best student halls in Germany, investors can only expect a return of 3.7 pct, while in Norway the figure is 4 pct, in Austria, Sweden and France the expected return is 4.25 pct, in the UK it is 4.5 pct and 4.75 pct in the Netherlands. The difference is therefore significant, but there is also a catch. “Students, even if they are from abroad, generally pay their rent in złoty. Foreign investors must therefore include the costs of limiting the currency risk - hedging it – in their purchases, which affects their valuation and the amount they are willing to pay for the student hall in Poland,” explains Kamil Kowa.

The expected return is also higher than for other real estate sectors. The best retail properties in Poland provide investors with around 4.5 pct, with offices it’s 4.75 pct and for warehouses it’s 5.2 pct. On the one hand, this means that the investor will receive a higher investment return per student hall each year than for a warehouse or hotel, but it also means that investors are generally less likely to pay a higher price for a student hall than for retail or office properties. Why? “This is a more demanding kind of property than others,” explains Kamil Kowa. A student hall has to be managed much more actively than most commercial buildings, where tenants usually sign a long contract and cover all the operating costs. “But with student halls, the tenants pay the rent, and then the manager has to take care of all the operating and property management costs as well as any repairs. Contracts are usually concluded for ten to twelve months. For this reason, potential investors will also expect a higher return from student homes than from commercial properties,” stresses Kamil Kowa. The different nature of this asset class is also one of the reasons why some investors prefer to take advantage of the knowledge of experienced operators on more developed markets than to take the plunge in a market that is new to them.

Student Depot (right) has built up the largest portfolio of student halls in Poland so far – it will soon comprise five completed properties

Promising product

According to Jolanta Bubel, the operational director of Student Depot, the student residences that make up the network are all rented out. “The occupancy of 98 or 100 pct you come across with student halls is difficult to replicate in other sectors,” emphasises Kamil Kowa. The product has improved considerably in recent years. The standard differs not only from state-owned student halls but also from rented apartments. This is not just about the convenience of having your own room, but also involves such services as room cleaning and changing sheets, wifi, air conditioning, and areas for entertainment, science, relaxation and fitness. It can even include a rooftop jacuzzi (although so far this is only available at the LivinnX student hall in Kraków). But it is the community-building aspect of such residences that is one of their key features – as is increasingly becoming the case in other real estate segments. “In the common kitchen areas of LivinnX Kraków we will be holding a variety of culinary workshops. We want to invite chefs to them to teach our residents to prepare, for example, local dishes. Our team will be responsible for the integration of the students and the organisation of this type of activity. Interestingly, it is not only student halls but also office properties that now have community managers who prepare sporting and cultural events for their buildings,” says Jakub Bartos, the head of the residential department at Golub GetHouse. He also points out that this opens up a different perspective for real estate marketing, away from just promoting the building itself. “LivinnX Kraków is not only a modern building but above all a place where a certain community can develop. The opportunity to be part of this is one of the key reasons why you should live here,” argues Jakub Bartos.

BaseCamp’s second student hall is in the pipeline in Łódź

Griffin in the lead

The largest portfolio has so far been put together for the Student Depot platform owned by Griffin. The company intends to finish its fifth building in October, which is to be located in Warsaw and will have 500 beds. This will bring the total for the network up to 2,100 beds when added to its earlier openings – in Wrocław (494 beds), Poznań (486), Łódź (283) and Lublin (289). The platform has announced that it wants to increase the number of beds to 5,000 within a few years, which will include not only the completed student halls mentioned, but also projects that are now under construction in Gdańsk and Kraków, as well as planned halls in Warsaw, Wrocław and Poznań. “We are currently focused on the development of a substantial network and establishing the brand’s position on the student services market. We are mainly building our new projects in close cooperation with Echo Investment, which has extensive experience in developing residential buildings, so we are sure that they will be of the right quality and that the construction time will also be short. We are also open to the idea of adapting existing buildings, but this is often a much more complex and less predictable process,” reveals Jolanta Bubel, the director of sales and operations at Student Depot. The buildings generally contain single rooms with a private bathroom and kitchenette, as along with an ‘all inclusive’ range of such facilities as a gym and internet access – all covered by the rent.

How the rooms will look in the building

A basecamp in three countries

BaseCamp is a relatively large investor by Polish standards, but has only recently entered the country’s student residences market. It has 2,000 beds in four buildings – however, most of these are located in Germany and Denmark. In Poland the company has so far opened one student hall with 600 beds (in Łódź, last year). The opening of a second student hall in Łódź, with 631 rooms, is scheduled for the summer of 2020. The company also has Wrocław, Sopot, Katowice and Gdańsk in its sights. “We will complete these projects in 2021. The total and final number of beds in these buildings has yet to be determined, but I think it will come to around 3,600,” believes BaseCamp Student’s marketing director Klaudia Majkowska, who stresses that the company is not considering selling on the buildings, which is why it thoroughly analyses each location. “They will serve us and students for a very long time to come,” emphasises Klaudia Majkowska. It also remains unclear whether this international chain will be entering other countries in the region. “We are looking at further expansion, but no decision has been made on this matter,” she adds.

Golub set to open first hall

In October students will be able to move into LivinnX Kraków, which is being developed in the city by Golub GetHouse together with American student hall operator CA Ventures. The latter already runs a network with 18,000 beds, mainly in North America. Apart from this Kraków project (713 beds), the two companies are planning to develop a similar building with 590 beds in Warsaw’s Praga Północ district, opposite Koźmiński University. Golub has secured the rights to the plot, but the project schedule has yet to be drawn up. “I hope that we will be able to buy another plot for this market this year. We are interested in large educational centres such as Lublin, Katowice, Wrocław, Gdańsk and Poznań. In my opinion, there are many good locations for the private student halls sector in such cities,” claims Jakub Bartos.

A study area in the LivinnX student hall in Kraków

Gent to go ahead

Gent Holding, the Polish developer of the Liv chain of student halls, has announced ambitious plans. It is currently building a hall for 509 students in Kraków and is preparing projects with another 1,000 beds in five buildings in Poznań, Katowice and Gdańsk. All of these should be completed in 2021. “We develop using our own funds, bank financing as well as external funding. We sell individual student rooms and apartments to individual investors and we also intend to develop part of the portfolio in partnership with institutional investors from outside Poland. This is a proposal for funds that want to build a portfolio of student halls in partnership with a local player on the Polish market,” claims Gracjan Kleger, the CEO and founder of Gent Holding. The developer is currently cooperating with Savills and CBRE in order to obtain institutional financing from abroad. “The entire Western market is structured in such a way that a very large part of the portfolio is held by institutional investors. Each portfolio of this type is a tempting proposition for external funds looking to generate profits from building up a portfolio of such assets, as well as the subsequent benefits from renting the apartments, whether for students or hotel guests,” explains Gracjan Kleger. The company is also open to further acquisitions in order to expand its portfolio.

Among the other student hall projects in the pipeline in Poland is The Fizz Kraków, which will have almost 1,000 beds. This is to be a joint project with Campus Group and Alkyon Partners. The Collegia building, with 730 beds, is also being planned in Gdańsk by American company Silver Rock. Polish Metropolitan Investments, which sells micro-apartments to small private investors, is another player that has recently debuted on the Polish market, with two small projects in Gdańsk containing a total of around 100 micro-apartments.

“For many investors, assets containing less than 2,000 beds or a portfolio worth less than EUR 50 mln may not be interesting enough,” explains Kamil Kowa, a management board member of Savills in Poland

We just cant get enough

However, the current supply of student residence is still not sufficient. According to ‘Student Housing in CEE: the Next Big Thing’, a joint report by Colliers International and law firm CMS that was published in April, if the current supply and demand trends continue, Warsaw will still suffer from significant shortages in student accommodation – a projected shortfall of 8,399 beds in 2028. This contrasts to the other main CEE markets. In terms of under-supply, the next cities on the list are Budapest (3,679), Kraków (1,227), Prague (1,795) and Bratislava (298). If a portfolio of single room residences was built to satisfy this demand, its value would amount to around EUR 1.22 bln. “In the private student hall segment, we have only twenty such buildings on six CEE markets. Eight more are currently under construction, including in Warsaw, Kraków and Bucharest,” points out Wojciech Koczara, the managing partner of CMS’s real estate team in Poland and the CEE region. At the same time, Poland, with 1.3 mln students and a steadily growing number of foreign students, would appear to be the most promising place for the further development of this sector in the region. “The private student hall segment has opened up significant opportunities for players who build their own projects as well as for investors who are ready to support developers financially. This means there is a slightly higher risk for institutional capital, since this market in Poland is only in a nascent stage, but there are considerably more benefits,” believes Dorota Wysokińska-Kuzdra, a partner and the director of CEE corporate finance at Colliers International. ν

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