A panel of institutional investors agreed that Canada’s housing crisis is a unique opportunity; however, they disagreed on the type of housing product developers could bring to university lands. Canada faces a housing shortage in many cities due to a growing population and increased international student enrollment.
“There’s room for different types of real estate on campuses across Canada,” said Andrew Tong, former Chief Investment Officer and Managing Director of Vancouver-based Concert Income Properties.
Tong participated in The SHURE Vancouver event on April 20.
“When SHURE called me and said, why don’t you come and join this panel on student housing, I said, the trend is moving towards housing for students and not student housing alone,” Tong told the audience.
Tong was involved with the acquisition of a property to build a multifamily building adjacent to the University of British Columbia law building through a land lease agreement. Tong said it is a fully-inclusive building with a separate kitchen, separate bathrooms, and no quads. Tong said his firm is concerned about the financing availability for student-specific properties. “This property is a typical market rental building compared with a student housing property which will have difficulty securing financing,” said Tong.
Greg Spafford, Fund Head, Forum Real Estate Income and Impact Fund (REIIF), who participated in the discussion, noted the need for new housing supply in Canada but the differences in the definition of the product. “A big issue right off the bat that we deal with is the definition of student housing,” exclaimed Spafford. “Many people say, what is it?”
Like Tong, Spafford looks at the broader industry when defining the residential product. Student housing is traditionally known as Purpose Built Student Accommodation or PBSA, but that’s the term “people in the know, on the university campuses” will use, said Spafford.
But what about the housing not defined as student housing but is occupied by students and much needed across the board in Canada?
“In the big picture, any students who aren’t on campus in a standard PBSA type of building are consuming housing elsewhere in the community, so they’re part of the housing crisis that we’re in, and accommodating them is part of the solution,” said Spafford.
Spafford noted a real challenge in building student housing in the past year. He said the industry has been shaken by more scarce capital, higher interest rates, higher cost of land, and higher cost of construction – collectively issues that “have made it very challenging.”
Jonathan Turnbull, Managing Director and Head of Canadian Transactions and Business Development at Harrison Street Real Estate Capital, participated in the session. Harrison Street is a global investment management firm focused on alternative assets, including student housing. Harrison Street has acquired properties in Calgary and Montreal in the past year and is actively seeking new properties in the various Canadian markets.
Turnbull also discussed the challenge of defining student housing but highlighted the unique opportunity to bring new PBSA to Canada. According to Turnbull, 15% of students in Canada are living in PBSA, compared to 35% and 40% in the U.S., and U.K., respectively. “We don’t have many beds here that are tailor-made for students, and that’s the opportunity we see.”
Turnbull recalled a conversation with colleagues from the prior decade when there was an ample supply for students, “When I started in the student housing space in Canada, we used to joke, well, you know, there are places for students to live, they’re not living on the streets; Well, that’s not true anymore.”
Turnbull says the world has “really changed – the demand is there, the supply is not.” Turnbull said Harrison Street is pursuing opportunities, noting the attractive demand side of the equation for student-related assets today.
“We’ve heard about it all day today. It’s a supply-demand imbalance, which makes it attractive for us. You look at a marketplace like Canada, long-term trends, student enrollment is growing at 2. 9% on average per year for the last 20 years, and you’ve got international student growth that we expect to continue,” said Turnbull.
All the panelists agreed that student-related assets are the best inflation-protected sector in the marketplace because of the annual turnover of 50% and the ability to move toward the market constantly. According to the panelists, the turnover rate in conventional multifamily is about 10% in an inflationary environment.
Meanwhile, Tong believes there are lots of opportunities. “Other post secondary campuses across Canada can look at examples such as the University of British Columbia and Simon Fraser University to offer a broad range of housing to their staff, students and communities. The key is to work out the predictable and timely development approvals and flexibility related to zoning and deal structure.”
Brian Minnehan, who works in investments at Blue Vista Capital Management, LLC, described his work in the U.S. student housing sector, witnessing solid and consistent fundamentals over the last few decades. Minnehan said Blue Vista has seen consistent rent growth and occupancy, even during the recent pandemic.
Minnehan said his firm had transacted $400mn in total capital investment, development, and acquisitions over the last four years. Minnehan is bullish on the Canadian market, noting similar trends regarding fundamentals to the U.S. “The purpose-built student accommodations in Canada is well behind where we see it in the States, so there is real potential there.”
Spafford asked Minnehan if he encountered challenges attracting investors, specifically small and mid-sized pension funds. Minnehan responded, “So it has been a little more challenging to bring in new investors to pair alongside our pension fund, although we have succeeded.” The biggest impediment, Minnehan, said, is the need for scale to put money to work right out of the gate.
Matt Woodland, Managing Director, Development & Investments, Greystar, concurred with prior panelists about hybrid projects. Like Minnehan, Woodland’s Greystar has pension fund partners and started in Canada in 2020 with a 600-unit hybrid student-conventional multifamily deal near the University of Victoria. Greystar owns and manages approximately 780,000 apartment units globally.
“What brought us up [to Canada] is many of our partners are Canadian pension funds, and said you guys should be up here; there’s a great opportunity up here for you as a company,” said Woodland.