Connection Capital is giving private investors the chance to participate in a £10 million fundraise for a company that owns and is expanding a portfolio of good quality student houses.
Student Tribe, which purchases shared student houses and refurbishes them where necessary, was established in 2016 by chief executive officer, Calum MacInnes, in response to the ‘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 will enable it to acquire a substantial portfolio of 27 homes in Manchester.
The company aims to continue adding to its portfolio over the next five years to build a brand with scale. It expects a good pipeline of prospective acquisitions as smaller players exit the market, due to increasingly troublesome houses in multiple occupation (HMO) licensing requirements.
Connection Capital said its clients saw the opportunity as an attractive way to gain exposure to UK residential property, especially as changes to the tax rules on buy-to-let have increased the pressure on the returns individual investors can generate.
It added that the Student Tribe investment offers investors the potential for income and asset-backed capital appreciation. The combination of high tenant demand, limited stock, one-year contracts and the ‘guarantor’ system also means that void periods for good quality student HMOs are generally very low.
Emerging asset class
While the purpose-built student accommodation (PBSA) market is making student accommodation higher quality, the HMO market has attracted much less institutional capital.
According to Student Tribe, there is a window of opportunity for those with the skill, expertise and funds to acquire these privately-owned properties on a gradual basis and build a solid portfolio of income generating assets, pioneering a new model in the market.
“This is an emerging asset class that has really resonated with private investors,” Claire Madden, managing partner at Connection Capital, commented.
“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.”
She added: “It’s also yet another chance for our clients to access a strategy that’s relatively uncorrelated to movements in mainstream asset markets.”
Madden explained that despite rising tuition fees and the recession, student numbers have remained strong. 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.
She concluded: “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. We’re confident that Student Tribe have got what it takes to carve out a market-leading position in this exciting niche.”