Over the past few years, real estate has been one of the most resilient sectors amid COVID-19-induced headwinds. Despite the rising interest rates, housing demand has remained irrepressible, causing mortgage rates to cross the 7% mark and hover near 23-year highs.
Blackstone: Commercial Real Estate Power House
Blackstone Inc., the largest holder of commercial real estate globally, is betting on rental student housing to be one of the most profitable sectors worldwide thanks to surging demand.
"Student housing is, I think, where the opportunity is most specifically generating a lot of strong cash for us and our investors," said Kathleen McCarthy, Blackstone's global co-head of real estate.
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The number of international students migrating to developed countries in the West has risen substantially over the last decade. International students, who are often charged higher tuition fees, are the biggest revenue generators for colleges across the West, especially in North American and Western European countries.
Nonetheless, the surging number of international students has resulted in a housing crisis across the U.S. and Canada. Approximately 43% of students studying four-year courses and 52% of students studying two-year courses face housing insecurity, according to a report published by Hope Center for College, Community, and Justice in 2021. Rental data published by Zillow stated that average off-campus rents have risen by 28% from the beginning of 2021 to $2,062 as of August.
Blackstone is leveraging the gap in the housing market to generate profits through various investments and acquisitions. In April last year, the alternative asset manager acquired American Campus Communities (ACC) for $1.28 billion.
For reference, the ACC owned and managed 166 properties across 71 university regions across the country, including notable institutions such as Arizona State University and the University of Texas at Austin. This move by the world's largest alternative asset manager is a wager on rental rates increasing as colleges reopen.
McCarthy highlighted that Blackstone has been focused on the rental housing market as it demonstrates a "great deal of resiliency."
Investing Across Oceans
Blackstone's investment in student housing properties has not been limited to North America. The asset manager has also invested in similar real estate properties across Australia, the U.K. and Germany, among other countries.
The rental housing demand from these countries tends to be higher compared to the U.S., as the latter has more complex visa policies.
"Those countries are really looking at education as somewhat of an export, and where the U.S. has had more challenging visa policies, those countries have been able to capitalize on that and are seeking to grow their universities but they need housing to do that," McCarthy said.
Blackstone's Largest Real Estate Fund
In April, the world's largest commercial real estate manager launched Blackstone Real Estate Partners (BREP) X, its latest global real estate fund. The fund raised approximately $30.4 billion in capital commitments, making it the largest real estate or private equity drawdown ever.
Approximately 80% of the fund's investments are in student housing, logistics, hospitality and data centers, marking the sharp change in sector selection from malls and traditional office spaces.
"BREP X's scale and discretionary capital position it well to capitalize on opportunities in its highest conviction sectors across the globe," Blackstone stated in a press release.
"Sector selection has never been more critical as we witness the bifurcation of performance within real estate," said Ken Caplan, global co-head of Blackstone Real Estate.
This is not the first time Blackstone has taken an interest in student housing. The firm's joint venture with Landmark Properties invested approximately $784 million in the U.S. student housing market. The partnership primarily focused on recapitalizing buildings, which had nearly 5,500 beds.
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