According to Value One Development's Sebastian Gruber in SHURE Zurich remarks, it's a different situation in financing construction and investment deals today, but not necessarily negative.

Markets will readjust due to interest rates and inflation, but it doesn’t mean there’s less activity: Value One’s Gruber in SHURE remarks

February 7, 2024

SHURE Initiative


SEBASTIAN GRUBER, Managing Director, Value One Development International offered comments to the SHURE Initiative.

Value One is an Austrian-based company focused on investment, development, and student housing operations, among other things. We are active in Austria, Germany, Netherlands, Poland, Italy, and Portugal. Portugal was our first foreign market. We've developed a couple of properties there, and we're still doing more projects and looking to do more.

PBSA is a High-Performing Asset Class

One of the reasons why we like PBSA so much is because of this natural hedge. It combines residential with one of the beauties of commercial properties like hotels where you can set a new rate every night.

In terms of financing, the segment still benefits from its attractiveness to the banks, being considered a stable part of the market that will always be needed, especially in the markets we're discussing. Regarding underwriting, I've yet to see that the banks have changed dramatically. We can get term sheets at around 200 pips margin for development projects, which is very fair from the banks. The first 350-400 pips hurt you, not the 200 that come on top from the bank. It's something to work with, and the impact is that your projects become more expensive, and these costs will eat into your profit margin as a developer. It's something that needs to be managed very carefully. We all try to manage as best as possible and have the best visibility early on in the project because, in former times, you could count on obtaining financing at a better rate than you needed.

What we do, what most people do now, is to be very early on in the project to secure the debt terms so that we have security on it because it does become a more significant part of a project budget than it has been before. Having said that, in my opinion, it doesn't mean that there's less activity in the market; it's just a different situation. Markets will readjust - I'm confident about that.

There is often still a gap between buyers' and sellers' expectations, but if we look at what happened in the last 12 to 18 months and in this period of time in the previous six months or so, we can see that the markets are readjusting, that markets are picking up again. I am confident that the segment will remain a substantial part of the real estate market.

The Undersupply Opportunity in Southern Europe

I think you can see the market fundamentals in Iberia (Spain and Portugal) and how undersupplied many of the markets still are, huge markets, like the capital cities of the two countries, also secondary cities, if you can call them secondary, like Barcelona or, or Valencia or Porto for that matter.

If we look at how well all the PBSA operators have done over the past year and how they've been able to increase prices, I'm confident they could still increase rental rates more. I don't want to suggest a cartel, but I'm sure it would not have any impact in some of the markets if everybody across the board just increased their rates.

On occupancy, take Lisbon, for example; residential market rents have increased by more than 30% over the last year, but you do not see that in the PBSA arena. PBSA has been recording records over the previous 12 months, so there's still so much potential.

Big Picture of Mainland Europe PBSA Opportunities/Market Challenges

There are three markets in Europe that can still grow: Iberia, Italy, and Poland because those are markets with several cities where you have significant student numbers and low provision rates. I expect this growth story to continue over the next decade.

Parents Prefer High-Quality PBSA-Operated Communities for Their University-Aged Children

Putting a price tag on the community derived from PBSA is almost impossible. This is a significant driver for people moving into a PBSA property because first-year students want to become part of a community when they move to a new city.

If we're now putting on our heads as student housing operators, we need to think about managing correctly, and the rest will follow. Then, it will be something other than whether we can charge 5 euros more for electricity. But, if we get this wrong, there is an issue because then you are perceived as an apartment building.

Our target market is not the kids but the parents because they're looking for a pastoral level of care, knowing their kids are all right when they move to a new country where no one can support them.

This is the part of the business that we need to get right and then the rest will follow. But if we get this one wrong, bad things will also follow.

Investment Opportunities in Primary vs Secondary Markets

On investing institutional capital, I'd probably put a good part into the established markets, but I would appreciate the secondary and tertiary cities. Look at smaller cities in Portugal like Coimbra, Covilhão, Leira, etc. for opportunities.

On secondary/tertiary cities, you still need to be careful that they're big enough. In Austria, we once made a property in a tertiary city, a relatively small but elite university in Leoben, which was very successful. Then, a second one came, and there was this price competition. We're still happy with it, but it could be a more liquid market. It is not easy to sell the asset.

A Final Word about Today's Environment

The challenge now is liquidity if you're looking for an exit to an institutional investor. But if you're looking for cash on cash, PBSA is a good arena.


- Summary comments from SEBASTIAN GRUBER, Managing Director, Value One Development International at SHURE Initiative in Zürich.

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