Saturday, October 22, 2016

Sovereign Wealth Fund Investment in Student Housing Now a Growing Trend --Ought There to be a CSR/Human Rights Dimension as Well?

(Pix  Larry Catá Backer 2016)

One is used to speaking about sovereign wealth funds either as vehicles for the projection of state power into the capital markets of foreign states through acquisition of foreign securities. Alternatively, it has been fashionable, especially among SWFs in developing states, to recast SWFs as an alternative to development banks. 

But SWFs have, for a long time, also invested in real estate.  That makes sense, especially for those SWFs with a very long term time horizon.  Yet SWFs have now discovered a means of combining both a long time horizon for wealth maximization and the possibility of generating potentially substantial returns in the short and medium term--by entering into the market for the exploitation of education services.  But rather than enter this market at its core--by investing in universities--the smart SWF is now investing in peripheral but essential services.  These include student dorms, food services, tutoring and the like.  These investments, when projected into foreign states has another benefit--they avoid any political or societal obligation that a state organ might otherwise bear to its own people.  Investing in peripheral services in foreign states permits the state to avoid any public service burden.  And, because they operate as a quasi private capacity, they might owe only a corporate responsibility to respect human rights, rather than a state duty to protect them. The obligations of states and enterprise sunder the UN Guiding Principles for Business and Human Rights might suggest otherwise.

This post considers the expanding interest of SWFs in student housing investment, especially outside the home state.  It focuses on the recent move by the Singaporean SWF GIC to stake out a very large position in this global market that promises both long term appreciation and short term revenue flows, and suggests the need to consider their human rights impacts as well.

Particularly important, has been interest in student housing, as an investment vehicle. "The sleeper in the investment world – student accommodation – is suddenly wide awake. A record €14.4bn in new capital has gone into the long-overlooked sector in the past 18 months as institutional investors jostle for position." (Florence Chong, "Student Housing: A sleeper emerges," IPE Real Estate (May/June 2016)).  The value of this investment is that it provides income generating investment while offering substantial appreciation, not just as a going concern but also with respect to the underlying value of the real restate.
In a world where office towers, shopping malls, and even industrial warehouses are becoming increasingly expensive, student housing exhibits all the characteristics of a solid income-producing asset. Statistics make a compelling case for student accommodation. Global tertiary enrolments are expected to rise rapidly to around 263m by 2025 – up from 165m in 2011, according to JLL. (Ibid))
The Canada Pension Plan Investment Board (CPPIB), has invested over €2.4bn in student housing. (Ibid). It notes that as a founding signatory, CPPIB "commits to and continues to be guided by the United Nations-supported Principles for Responsible Investment (PRI)." (HERE). They assert a commitment to a certain level of CSR-Human Rights Due Diligence, though the substance of this engagement remains ambiguous:
In our private investments and real estate departments, CPPIB has ‘built-in’ opportunities as a private owner to engage and share our views on the company’s management of ESG - for example, by holding a board seat and taking an active role on a health and safety sub-committee. This kind of access is typically not available to owners in public markets and thus a primary goal of our engagement efforts with public corporations is to achieve more complete and consistent disclosure. (HERE)
Yet, environmental, social and governance factors are understood as mere factors in approaching investment risk--a severe limitation defended on the basis of a legislative mandate that is investment only driven.  That raises another issue--the extent to which Canada (in this case) fails in its duty to protect human rights by legislating, effectively, that one of its investment vehicles is forbidden from, for example, eliminating investment solely on negative ESG factors.  This is especially the case where on ideals with student housing.  This activity touches not just on housing, and employment of housing related workers, but on the environment in which students are housed to maximize their ability to profit from their education.  For many states, these are obligations that touch both on human rights and on core state interest in the welfare of their people.   These rights might include ensuring the human right to housing--with special sensitivity to eviction (see, e.g., here).  It might also  include the responsibility to ensure special protection against harassment and violence, especially in the context of the learning environment of which this is a part (see, e.g., here, here, and here). And lastly, it might at a minimum require the owner to ensure policies of non-discrimination in housing and the provision of services within housing units (e.g., here). As a commercial investor, SWFs at a minimum ought to have a responsibility to respect human rights, with special consideration that student housing raises (this is itself a complex issue, see, here). As a state instrumentality, SWFs may be required to make good on a state duty to protect student human rights within the special context of housing.

Another SWF that has chosen to take a significant position in investment in these peripheral services--ones that offer long term profits and short term income--is the Singaporean Fund, GIC.  That investment, as well, is understood solely in economic terms--an ideal means of exploiting capital to produce long term appreciation and a constant stream of income form students. As one analyst explained, “Student housing delivers stable cash flow, and the yield can be 50bps higher than, say, multi-family investment.” (here, quoting Jaclyn Fitts, director of student housing for CBRE capital markets) But there is little to suggest an obligation to provide a basic level of service or to ensure that the properties provided  will meet minimum requirements for maximizing conditions under which learning is possible. 

29 September 2016By IPE staff

GIC, Singapore’s sovereign wealth fund, has bought a student housing portfolio in the UK from Oaktree Capital Management.

It said the acquisition, which covers 7,150 beds, is the biggest transaction in the market so far this year.

The portfolio, which will be managed in partnership with student accommodation operator GSA, was reportedly sold for around £700m (€811.1m) according to media reports.

Madeleine Cosgrave, regional head of Europe at GIC Real Estate, said: “The high quality assets are located close to university campuses and city centres.

“As a long-term value investor, we believe student accommodation will be a sector that continues to deliver steady rental growth and resilient income returns amidst a challenging, low-yield environment.”

GIC has been building a global portfolio of student housing assets and was one of the first institutional investors to enter the UK sector in 2005.

The UK portfolio bought from Oaktree has been built within the past three years and includes 3,634 operational beds across nine assets in Liverpool, Bristol, London, Edinburgh, Cardiff and Southampton.

The deal also includes a pipeline of 3,516 beds in Plymouth, Portsmouth, Birmingham, Bournemouth and Cambridge.

GSA also said it has acquired the operating platform of the Student Housing Company.

The properties are fully-let for the 2016-17 academic year on a combination of direct student lets and university nomination agreements. GSA will take over operational management of the portfolio.

Nicholas Porter, founder and chairman of GSA said: “This top quality portfolio will give GSA a stronger foothold in the UK market, where the high demand for university places continues to drive the need for well managed, purpose built accommodation.” . . . .

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