Investment in PBSA provides stable cash flows and long-term growth opportunities stemming from the growing supply and demand imbalance in Canada. Investors also receive inflation protection as rents are adjusted to market much more frequently than traditional apartments.
Suitability
Investing in purpose-built student accommodations (PBSA) is for those seeking stable returns and long-term growth. PBSA offers consistent cashflows, low volatility, and impactful opportunities.
Why invest in
Purpose Built Student Accommodations (PBSA)?
Strong Demand
Demand from foreign students has been a major catalyst for the purpose-built student accommodation market in Canada; international student enrolments have grown at ~12% annual growth over the past 10 years.
Lack of Supply
There is an estimated shortfall of more than 600,000 student housing beds in Canada.
Traditional on-campus housing is outdated and often fails to address the needs and preferences of modern students.
Inflation Protection
Frequent mark to market through natural turnover offers a compelling return thesis for PBSA assets
Opportunity
An opportunity exists in Canada where the yield spread between traditional multifamily assets and PBSA remains wider than that of the USA and the UK.
These mature PBSA markets have seen this yield spread significantly compress in recent years.
Steady and Reliable Income Stream
PBSAs can provide a consistent stream of rental income due to the stable demand for student housing.
Resilience in Economic Downturns
The demand for education and student housing tends to be less affected by economic downturns compared to other sectors, making PBSAs a relatively resilient investment option.
Environmental and Social Impact
Some investors are drawn to PBSAs for their potential positive impact on students' lives and the local community, providing a sense of purpose alongside financial gains.
Evolving Housing Needs
Modern students often seek comfortable, convenient, and well-equipped accommodations.
PBSAs can cater to these evolving housing preferences.
Opportunities for Value-Add
Investors can identify opportunities to enhance and improve existing PBSAs, potentially increasing their rental income and overall value.
Growing Institutional Interest
Institutional investors, including pension funds and real estate investment trusts (REITs), are increasingly entering the PBSA market, indicating its attractiveness as an investment sector.
Risks & Volatility
Understanding risks and volatility is critical to being successful investing in both public and private markets and both share similar risks, but others are quite different.
- Manager Risk
- There is always the possibility that a manager may make a series of bad investments or allow self-interest to put investment capital at risk. Through our due diligence and manager selection process, we work to minimize this risk.
- Liquidity Risk
- Investments in Student Accommodations or other Private Real Estate are less liquid than traditional investments, such as publicly traded equities and bonds.
- Investors may have limited options to sell their shares or exit the investment before the end of the investment term.
- Private funds can be “gated” (investors may be restricted or limited in their ability to add or withdraw funds) mostly due to high volumes of redemptions during short periods of time, which can last for long periods of time. This has happened when the reputation of the fund or manager comes into question or when significant losses are experienced.
- This lack of liquidity could result in challenges if you need to access your capital unexpectedly.
- Valuation and Transparency
- Investments in Student Accommodations or other Private Real Estate are not subject to the same level of regulatory oversight and reporting requirements as publicly-traded REITs.
- This can lead to challenges in accurately valuing the underlying real estate assets and a lack of transparency regarding the financial performance and operations.
- Most self-storage opportunities use leverage to improve returns, which is normal in real estate investments.
- Limited Exit Options
- Exiting investments in Student Accommodations or other Private Real Estate can be more complex and restricted compared to publicly-traded equities, bonds, or REITs.
- There might be restrictions on selling your shares to other investors, and the process could be subject to certain limitations or conditions, potentially impacting your ability to realize returns on your investment.
- To mitigate these risks, thorough due diligence and partnering with experienced management teams are essential.
- Volatility
- Private investments, such as private debt and equity, are not traded on public exchanges. Their valuation and trading occur less frequently and are often based on third-party valuations.
- This is advantageous as it removes investor stress caused by volatility of publicly traded securities, but investors should understand and be comfortable with pricing mechanisms.
Liquidity
- While investors should consider an investment for the medium to long term, liquidity is monthly, subject to a 3-year soft lock. Within the first 3 years of investment, investors may be subject to early redemption fees to withdraw their money.
- Private funds may restrict withdrawal requests mostly due to high volumes of redemptions during short periods of time.
Potential Returns
- Every investment has many moving parts so predicting the future should be used for estimation purposes only.
- Target return is in the range of 8-12%
Taxation
Income and growth generated may be sheltered in registered accounts.
For non-registered accounts, income is generally in the form of return of capital which effectively defers tax until the investment is sold.
