I’ve been involved in student housing for 23 years, from the UK, since its emergence as a sector in the late 1990s and early 2000s.
I was involved in one of the first M&A transactions involving Unilodge’s sale to Unite back in the early stages of the UK sector. Since then, I’ve been involved in European markets for the last six or seven years and am looking to grow the industry across the nascent European markets.
I am active from Ireland, the Czech Republic, the Nordics, and down through Italy, and I am also starting to look at Greece. And that’s working with our teams across the living sectors in each jurisdiction. So, it is predominantly transaction-focused, from student housing to aged care at the other end. We provide that holistic pan-European overview to investors and developer operators alike.
We also have our debt advisory team within our operational capital markets division at one end, and then we have equity solutions, including capital raising and JV structuring – all within the division. We are providing a mini investment bank, for want of a better phrase, with a real estate focus.
How I See the Italian Opportunity:
If we’re looking at Italy specifically, there is a waste of money still looking to enter the living space, institutional capital, and value-added institutional money where they have entered other European markets. They may have had an asset-by-asset or larger strategy, and they’re starting to pick up single projects in Italy, mainly northern Italy and Rome.
Value Add Money is Active and Ready to Tackle the Current Cycle:
Looking back at how the UK performed in 2007-2009, we still had a fantastic occupancy. 95-100% percent occupancy. The demand was there. Rental growth was there. It was just that there was that dislocation between leverage and where values were. The actual income stream was there. We are at that moment again now.
We’re not able to deliver product into the market. That’s one of the biggest challenges in a new market in Italy that is still evolving in terms of the cultural differences between the UK and more mature markets like Iberia. The population has yet to see the benefits that that brings. It’s slowly getting there, but we’ll start to see how that evolves over the next 2-4 years.
New Market Investment Challenges and Working with the Investment Committee:
One of the challenges we have with a new market from the investor standpoint: The investment advisors and transaction advisors have to go to their investment committee and say why should I invest in Napoli or Genova as opposed to somewhere like Milan, Florence, Bologna, which are more globally renowned.
Two Different Strategies:
You’ve got the private equity value-add funds, which are going for market coverage, trying to build up scale relatively quickly. However, you’ve got the one-off institutional investors looking at the five courses, who are very much focused on the city that they can easily explain to their investment committee, especially in relative turbulence.
To come in at that secondary tier-two level, there are probably some in this room and elsewhere who have that aggregation strategy, which is really interesting. That’s been that’s been a challenge across Europe for many years. And we’re starting to see those investors, such as GSA, operate pan-Europe and get an excellent foothold. We’ve got a real movement now, but it’s around that operating platform that it has become institutionally credible.
Focus on Operations and Secondary Revenue Streams:
Regarding the operator, it is about more than just being focused on the student experience. It’s also about driving that non-core revenue during the summer period that can turn the dial regarding the returns investors are after or can achieve.
The Challenge of Rental Caps:
One of the other challenges we’re facing is around rental caps. We’ve seen that starting to evolve in Florence, and I think it’s happening more municipality by municipality. When municipalities are, with almost no limited notice, beginning to put on rental caps, new schemes have yet to come out to the ground, which throws out the viability of projects.
The Future and Why I am Optimistic:
There’s no doubt that many investors are in a holding pattern now regarding where to deploy their capital and whether transaction advisors will sign off on wanting to put LOIs or bids in on projects, taking that to the investment committee. They’re even more scrutinized, so the returns that are being driven, but also to the flight to quality of the location that the opportunities are in, will come under the microscope even more.
There will likely be transactions happening over the next 12- 18 months. We’re fortunate to be in a sector still holding up regarding occupancy and the rental growth story. I’m optimistic for the future regarding built assets that are operational will certainly stabilize, and will continue to perform. We will see a real barrier to entry over the next 12 months with construction costs and with land values. There’s a disconnect between vendor and purchaser, and that will only insulate built assets or those with permits that are in place now for the future.
– Marcus Roberts of Savills recorded remarks at SHURE Initiative Europe Emerging Markets, 10 October 2023 in Zurich.