PBSA developers adapt to higher borrowing costs with JVs, say industry experts

At this year’s UKREiiF, industry experts deliberated the viability, supply, and demand of the UK PBSA market, delving into the strategies that can be used when debt is harder to access.

DFT attended forum’s ‘Addressing the housing challenges in higher education: unveiling the impact and solutions’ talk’, which was mediated by Jack Smart, director of student housing at JLL.

Panellists included Megan Toone, transactions manager at Legal & General Investment Management; Mike Haverty, partner at real estate asset manager Curation Capital; and Marcus Weeks, director and head of living at development and investment firm Firethorn Trust.

During the discussion, panellists shared the strategies they were looking to take in the PBSA market, especially during a challenging time for securing debt for such projects.

“We're looking for opportunities where sites and development opportunities [are] perhaps falling through the gaps,” said Marcus.

“Funding issues have meant that other developers haven't been able to buy sites or complete on them after gaining planning, and we've got a unique window at the moment to be able to make the most of that.”

Where some developers may be struggling to gain the finance to develop sites, or have issues with making them viable, Marcus sees an opportunity.

“Ultimately, we're looking for the opportunities where other people perhaps can't perform at the moment [due to] funding challenges. For us, it makes a lot of sense to be targeting the best markets, because there are still opportunities,” continued Marcus.

While higher borrowing costs, particularly for drawing down debt for land purchases, has become a hurdle, Marcus highlighted patterns where developers have adjusted and adapted to these market conditions to unlock development.

“The way we've seen the market evolve has been around the JV structure, which has been really interesting to see. I think [it is] great for the market to be showing some leadership in terms of creating new structures to try and keep deals happening.

“Ultimately, it's putting more risk on developers because funders aren't necessarily willing to stand by the values at the end. If you're a developer that has got a bit of debt and needs to find an exit of some sort, we're finding ways to do that.”

Marcus also doesn’t see debt arrangements and gilts changing anytime soon, and therefore predicts JVs to become more prevalent moving forward.

In addition to funding obstacles, location is still a key consideration when it comes to investing in PBSA assets.

Prime areas where rental growth is the strongest and exit liquidity is available are crucial, according to Marcus.

Mike concurred, emphasising how certain locations hosting Russell Group universities are still key, with Curation Capital’s success being dependent on the triumphs of these institutions.

Sub-locations were also noted as important: “You can definitely see examples of cities that have two stories going on,” said Mike, highlighting Birmingham as an example where areas within the region have different dynamics.

“Without knowing that, you could ultimately make a wrong investment in the wrong area and not reap the rewards you might do somewhere else in the city,” explained Mike.

Megan also urged the need to look at the longevity of the university. “For us, we're a long-term investor [of] 30-years-plus, so [it] has to stand the test of time and absolutely has to be in the right location.”


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