The sell-off and shortchanging of student accommodation

The proliferation of private student accommodation in recent years requires a probe into the key players involved in this lucrative endeavour.

Hmm. Smells like portfolio.

Recently, students might have become aware of Scape when the USU listed them as a sponsor, debuting this partnership at Welcome Week, with a stall advertising a chance to “win a free year of uni accomodation”. Private accommodation providers such as Scape, Urbanest and Iglu, are most associated with high price points and an impersonal environment. Rather than homes, they are WeWorks for students who often don’t live in them for very long. 

They are also very expensive. For instance, a 13.3 square meter studio apartment at Scape at Abercrombie near the Camperdown campus costs $599 per week. 

Purpose Built Student Accommodation (PBSA) in Australia has recently become an increasingly mainstream and highly profitable sector for international and institutional investors. According to real estate leader, Savills, the UK PBSA sector is now allegedly set to be worth $135 billion,  reflective of the fact that most UK students study away from home in university towns which have limited supplies of private rentals. 

Tertiary education is Australia’s third largest export (dipping to fourth during the pandemic). In part, this export is driven by the underfunding of universities by the federal government, which drives universities to enrol more international students, who are more profitable per student than domestic students. However there is currently an undersupply of PBSA, meaning institutional investors see a viable opportunity to get in on the boom.

PBSA heavily depends on the supply of international students, evident in submissions by the PBSA Working Group, composed of major players such as AMP Capital, Scape, UniLodge and Iglu. The group’s lobbying goes beyond submissions to education strategy consultation, having asked for financial support in the 2021 Federal Budget when border restrictions rendered “occupancy levels dire, typically 20 to 30% and deteriorating with each passing semester”. 

Scape’s investors include a Middle Eastern sovereign wealth fund, China’s state-owned commercial bank ICBC, and Luxembourg-based German investor WPI. Iglu was bought  for 132 million dollars in 2014 by GIC (a sovereign wealth fund by the Singaporean Government)) and Macquarie Group. UniLodge is now majority owned by Pamoja Capital, a Luxembourg based private equity firm founded by Canadian billionaire John MacBain. 

Institutional investment in PBSA as a lucrative asset class and a dearth of affordable student housing is driving “town and gown” conflict. USYD’s own submissions admit high PBSA prices mean students are increasingly left to compete with lower and middle-income locals for private rental accommodation near campus. 

This is best represented by Scape’s Pemulway Project, situated on Redfern’s the Block, the site of the first urban Indigenous land claim in Australia, and a place of continued Indigenous community and presence. The Aboriginal Housing Company originally received approval for six storeys of student accommodation in 2012. 

Subsequently, a modification to build 24 storeys was later approved by the NSW Independent Planning Commission, conceding that an increase in size was necessary due to its proximity to large institutions like USyd, which cite the provision of student accommodation as part of its “strategic visions”. 

The Pemulway Project was originally designed for Deicorp. Deicorp’s housing provider, Atira, is a joint venture between Goldman Sachs and Blue Sky Alternative Investments. Atira was sold by Deicorp to Scape for 700 million dollars in 2019, transferring a portfolio at the time of 3510 beds across 6 facilities in Melbourne, Brisbane and Adelaide, as well as 3 development properties in Sydney, Melbourne and Perth. As a result of this acquisition, Deicorp, Scape and AHC are all stakeholders of the Pemulway Project. This acquisition also means Scape had a bigger real estate portfolio in Australia than Novotel and Meriton. 

Scape, supported by 1.5 billion dollars from Allianz, AXA Investment Management and Dutch pension fund APG, then acquired Urbanest for 2.2 billion dollars, which at the time had 6805 beds and an estimated net property income of 100 million dollars per year. 

So who sold Urbanest? 

Well, Urbanest was owned by the Washington State Investment Board, responsible for the state’s industrial insurance program, public funds for colleges and universities, and developmental disability programs”. According to its Linkedin, it is responsible for “dramatically contributing to the state’s bottom line by earning the lion’s share of money needed to cover state pension benefits.” 

A dearth of affordable student accommodation causes both gentrification and encourages a investor-first, student-second approach to housing. And so, that is an investor ledger and crash course on the unhealthy relationship between universities, policymakers, international students, institutional investors and the Sydney rental market.