Blackstone enters student accommodation with $500m splash

The deal shows that the sector is firing in the wake of the pandemic as Chinese students pour back into universities.

Student One's Wharf Street tower is the tallest student accommodation building in the world.

Private equity and property powerhouse Blackstone has forged into the country’s booming student accommodation sector, picking up the Student One business for more than $500m and flagging its ambitions to become a long-term player in the area.

The move comes as the “living sector” spanning apartments, hotels and even social housing is drawing big investors into Australia while traditional commercial property areas like offices and shopping malls come under pressure.

Blackstone swooped on the Brisbane-based business which controls three sites with around 2300 beds in an off-market move after an earlier play by a rival international operator did not result in a deal.

The pair’s interest in the sector is part of a broad wave of investment in which global institutions have backed the development of new student housing towers around the country as the international student cohort returns to Australia in larger numbers than ever.

Blackstone’s move is also in line with its conviction that student accommodation will surge worldwide in coming years and it has already acquired major businesses in the United States and Britain.

It is betting the trend of international students seeking out top English speaking universities in major cities will accelerate, with the flows partly driven by global instability and even the prospect of an economic slowdown next year is expected to lift numbers.

Blackstone is best known locally for its $9bn takeover of James Packer’s Crown Resorts last year, giving it control of one of the country’s premier gaming empires, but the move into student accommodation could be more lasting.

Buying the Student One platform gives Blackstone control of three premium assets in Brisbane’s central business district, as well as an integrated management company with about 40 staff.

Student accommodation is founded on offering higher levels of services and care than rivals in build-to-rent and the wider housing market, and the Brisbane operation has services like a 24-hour concierge, gyms, study halls and community facilities.

Student One was launched in 2015 and it has specialist towers in Brisbane’s Wharf Street, Adelaide Street and Elizabeth Street. It was a relatively early entrant into the rapidly-growing student accommodation market and it has been followed by a series of local and international players.

The sector has been consolidating with the top five players accounting for 80 per cent of the industry. Operator UniLodge is the largest and Scape has been buying up rival platforms as the sector bounces back strongly from the depths of the Covid-19 pandemic.

Student One’s parent company Valparaiso is a principal equity investor focused on a value-added strategy in real estate across Asia and it was advised by real estate firm JLL’s Luke Prokuda and Stuart Crow on the deal.

The assets are 94 per cent occupied and there is room for expansion as Brisbane is now facing calls for more student accommodation to be built, even though the main focus of the industry is Sydney and Melbourne.

Blackstone sees the sector as a growth area as education is already the largest non-resource sector of the economy and Australia is a top destination alongside the United States, Britain and Canada, while also presenting a cheaper option.

There are an estimated 400,000 international students in Australia and they account for around a quarter of university enrolments and further growth is expected as the China inbound market is yet to fully recover.

International students make up 25 per cent of Australia’s university enrolment and there is more room for growth with China’s inbound student market yet to fully recover. There has already been a solid rebound post-Covid and 2023 student visa grants up 42 per cent compared to pre-Covid.

At the same time there is a shortage of traditional on-campus accommodation in Brisbane, where universities house only 5 per cent of students.

Blackstone is betting that its offer of high-quality student housing will play out globally and its funds bought American Campus Communities for $US12.8bn last year and iQ Student Accommodation in Britain for £4.7bn in 2020.

The move is a conviction played by the big private equity firm rather than an opportunistic investment. Blackstone believes big players can play a critical role in the market and add to the supply with high-quality housing.

“We are pleased to make our first investment in the student accommodation sector in Australia. Student One specialises in and is focused on the premium student accommodation market segment for students seeking to live in the CBD,” Blackstone managing director Mark Harrison said.

“With over 2,300 beds in the downtown centre of Brisbane, Student One offers state-of-the art amenities in a highly active social and recreational environment designed and managed for students,” he said.

“Student accommodation is one of Blackstone’s high conviction global investment themes, where we’ve made major investments in top education markets like the United States, United Kingdom, and now Australia,” Mr Harrison said.