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Blackstone bets big on UK's student housing
US private equity group Blackstone is betting big on Britain's property market.
But the £4.66 billion (S$8.32 billion) that Steve Schwarzman's company is paying for iQ Student Accommodation is not really an endorsement of Prime Minister Boris Johnson's execution of Britain's exit from the European Union (EU).
Rather, Blackstone is wagering that whatever happens with Brexit, the global allure of an English education will endure.
True, it is the largest-ever private real-estate transaction in Britain, according to Blackstone. The sellers, Goldman Sachs and medical charity the Wellcome Trust, have grown the business while the British people have agonised over their divorce from the EU.
The company was created through the purchase of a £2 billion housing portfolio in 2016, followed by the £870 million purchase of Pure Student Living in 2018. The number of beds has grown by 56 per cent to 28,000 in four years.
Although Blackstone is paying up for iQ, it is getting above-average growth. Under Goldman's ownership, the company increased iQ's rental growth by 5.2 per cent in the 2018-2019 financial year, higher than the market average of 2.6 per cent. That also beat London-listed rival Unite Group's 3.4 per cent bump. Unite last year acquired Liberty Living's UK assets in a £1.4 billion deal.
The real takeaway seems to be that no matter what happens with Brexit, the world's striving classes see value in British degrees.
Britain has three of the top 10 globally ranked universities, according to Times Higher Education, with Oxford and Cambridge at the top of the list. The UK government wants to increase educational exports to £35 billion by 2030 from £20 billion in 2016. Mr Johnson is backing the sector. His government has targeted growing international students from 422,000 to 600,000 by 2030. The reinstatement of two-year working visas for university graduates also aids the UK's continued attractiveness.
US President Donald Trump's antagonistic approach to China has also moved many mainland students away from higher education in the US.
It's also an under-supplied sector. Property agent Knight Frank reckons there are three times as many full-time students in Britain as there are beds being built by iQ and its ilk.
Even with the more than 32,000 student beds in the pipeline, the ratio of students to beds is still at around 2.8. Blackstone is leveraging itself to British intellectual power, if not the brain currently occupying 10 Downing Street. BLOOMBERG