Why Family Offices Should Consider Investing in German Student Housing

Contributed by Marcus Evans, 26 November, 2014

"Family offices should consider adding student housing into their investment portfolio, as a low volatile and recession-resistant asset class which also is a form of investing in education and the future of our students," recommends Felix Bauer, Chief Investment Officer, Deutsche Real Estate Funds. The asset class has proven to be counter-cyclical, as more people sign up to study in recessions, but according to Bauer, what differentiates the German market from that of the UK and US is the classification of the properties as residential and a lower student turnover, leading to less operational and management input being required and more stable cash flows.

Deutsche Real Estate Funds is an investment manager at the marcus evans Elite Summit 2014, in Montreux, Switzerland, 12 - 14 November.

What type of real estate investments is particularly attractive for private wealth portfolios? Why?

We think student housing in Germany is very attractive, as it is a relatively new asset class although in Germany it forms part of the residential sector. Student housing is low in volatility and recession-independent. The education system in Germany has been restructured in recent years into a more international system, providing more postgraduate degrees as well as more courses in English. In addition, there are no tuition fees. This makes Germany a very attractive destination for international students and substantially increased the demand for purpose built campus near student homes.

How does it compare with the UK and US student housing markets? Why is the classification of residential property considered a plus?

This is a big differentiator with some of the student housing properties wealth managers may have looked at in other countries. The planning consent for the homes is residential, so it is a residential asset but rented on special, for the owner flexible, leases to students. The student as a tenant is supported and validated by his parents.

In the UK and US, students stay in the properties for 44-46 weeks, a 90 percent plus fluctuation of occupants every year which requires much operational and management input. In Germany, students stay on average for two years, so the yearly fluctuation is lower at 20 percent. This establishes as more stable and long-term income which is attractive for wealth managers.

How does the management of student housing compare with that of residential properties?

Even though there is less fluctuation, to extract the most value out of the properties it is important to manage the properties well, so a good track record and expertise are a must. More people move in and out of the properties, and leases are on an all-in basis, which includes electricity, insurance and so on. To attract students from all over the world an online platform and marketing with the local schools are also needed. As the rooms are furnished, furniture and equipment may need replacement. Managing those student homes well will extract optimal returns while providing the best place to live for students in town.

What is the best way of gaining access to this sector of the market?

It depends on the risk/return profile of each investor. Nevertheless as it is a specialist sector, one should work with specialists. We offer three routes. One, through a regulated and listed five-year bond, led by two German banks. The bond is listed on the Frankfurt stock exchange thus it attracts a lot of interest from wealth managers and institutions. It has a fixed coupon of 4.2 percent and security is first-ranking. There is no debt on the properties and it is a very de-risked good-yielding product.

The second opportunity is a special investment fund where one or more family offices or wealth managers can invest with us in a special investment fund in Luxembourg. The fund provides Mezzanine, acquires third-party debt and purchases student homes, for a target IRR of 12-13 percent for the investor.  

The third route is relatively simple, a direct investment into properties. We help investors source, acquire and manage the properties.

Interview by Sarin Kouyoumdjian-Gurunlian, Press Manager, marcus evans, Summits Division

For more information on the Elite Summit, please contact Laurel Zevitz at l.zevitz@marcusevansch.com

Tags: interest | Investment | Invest | Investment | investment | Germany | Switzerland | Luxembourg | insurance | education | fees |



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