Blackstone builds student dorm in City of London

Source : Business Times – 3 Dec 2009

£205m skyscraper overlooking Broadgate will open in mid-2010

The tallest tower in London’s main financial district to open next year will not house bankers or office workers – it will be a student dormitory.

The 33-story building’s owner is Blackstone Group LP, the world’s largest private-equity company. Blackstone entered the UK’s student-housing market four years ago and has so far invested more than £400 million pounds (S$911.4 million). Rents have risen even as Britain endured its worst property slump in more than three decades.

‘There is a chronic imbalance between supply and demand in this sector,’ said Stuart Grant, the Blackstone executive who oversees the student-housing unit. The average occupancy rate in the industry is 99 per cent.

The shortage of accommodation for London’s growing student population has caused average rents to rise by an annual 5 per cent over the last six years, Knight Frank LLP said in a Nov 23 report.

That compared with an average gain of 0.6 per cent for all commercial properties, according to the London-based real estate broker.

Nido Spitalfields, Blackstone’s second student hall in the UK capital, will have space for 1,204 pupils paying as much as £300 a week for an en-suite room. The 105m skyscraper is due to open in the middle of next year. It will overlook Broadgate, the office complex in the City of London that is half-owned by the New York-based company, and will cost about £205 million, according to Mr Grant.

There are 270,000 full-time students in London, according to a survey published in March by Drivers Jonas, a broker based in the city. That number will increase by about 40,000 within three years as overseas students keep flocking to London and more UK teenagers choose higher education in a weak job market, the firm estimated.

More than 60,000 people attend three of the UK capital’s largest universities: London Metropolitan, Middlesex and the University of Westminster.

‘Given the lack of finance currently available for development and the constrained pipeline, rents are likely to continue to rise for the foreseeable future,’ Knight Frank said in its report.

Nido Spitalfields will be similar to Blackstone’s first student-housing project in the UK, a pair of 16-storey towers in the King’s Cross area of north London that were completed in 2007. The property has 846 rooms, or ‘cubes’ as the company calls them. Most have 16.6 sq m to 18.4 sq m of space.

The expansive foyer, with a manned security desk alongside a kiosk selling Starbucks coffee, is spotless and the only sign of student mischief is a supermarket trolley lurking in the lift. It would not look out of place in Canary Wharf, the cluster of glass-and-steel buildings in east London occupied by companies including Barclays plc, Credit Suisse Group AG, HSBC Holdings Plc and Citigroup Inc.

Most rooms in Nido King’s Cross cost £245 to £270 per week. Internet access is free and students have the option of paying for a maid. That is expensive, even by London standards. For the same price, they could rent a local one-bedroom apartment with a separate lounge, kitchen and bathroom.

About 80 per cent of the tenants are from outside the UK, according to Blackstone’s Mr Grant. Parents are often willing to pay for accommodation, especially in the first year, if their children are guaranteed security in a city that many are probably unfamiliar with, he said. Americans and Chinese are the largest groups of foreign students.

In the US, most campuses offer some form of accommodation. Around 20 per cent of London students can live in rooms provided by their university.

‘Higher education is increasingly a global business,’ Mr Grant said. ‘We’re providing a safe environment for foreign kids coming to London.’

Blackstone plans to build a third residence for students in London next year on a site close to Notting Hill, a fashionable district in west London, Mr Grant said. The building’s 272 rooms will be available starting from 2011.

Blackstone Real Estate Advisors, the firm’s property investment and management unit, has raised more than US$29 billion since it was formed in 1992, according to the company’s website. The firm started investing in student housing and properties such as pubs and nursing homes about four years ago as European retail and office buildings were becoming too expensive, Mr Grant said. Blackstone hired brand consultant Tyler Brule in 2005 to design Nido, which means nest in Spanish and Italian.

Blackstone will operate student homes with about 2,200 beds by mid-2010. The biggest provider of this type of accommodation in the UK, Unite Group plc, has about 38,500 beds, according to its website. Unite’s biggest shareholders are Fidelity International Ltd and JPMorgan Chase & Co, according to data compiled by Bloomberg.

‘We offer some defensive characteristics in a tough economic environment,’ said Mark Allan, Unite’s chief executive officer. ‘Student accommodation is now firmly recognised by investors as providing that.’

Blackstone will probably sell the Nido business within three years, Mr Grant said. This could take the form of an initial public offering to create a real estate investment trust, he said.

The US firm has already purchased a site in Barcelona to build accommodation for 850 students and is looking at others in Paris, Sydney and Singapore.