The trends toward urbanisation and rising housing costs that have helped drive interest in core rental housing assets among institutional investors are also helping to spark opportunities in specialty residential sectors such as student accommodation and senior living, according to a trio of experts appearing at a Mingtiandi event today.
“Traditional asset classes are seeing very tight pricing, a huge amount of liquidity and competition for those assets, so the rental-residential alternative group is seeing a lot more interest,” Jyoti Ramchandani, a managing director at SC Capital overseeing the private equity firm’s Score+ strategy, said in the final instalment of MTD TV’s Multi-Family Forum 2021.
Ramchandani was appearing at the online event alongside Shusaku Watanabe, head of Japan real estate for Nuveen; and Stephen Gaitanos, managing director and group CEO of student and young professional-focused rental housing operator Scape.
Together the three investment leaders explained how operationally-intensive sectors such as student accommodation and senior living are providing investors with higher yields as competition increases for core apartment assets.
Full Basis Point Boost
Watanabe, whose firm has already acquired 45 mainstream apartment assets in Tokyo, said that cap rates for prime multi-family properties in the Japanese capital market have compressed from as much as 4 percent three years ago to near 3 percent now. He indicated that yields for senior living assets are closer to 4 percent.
“Moving into the alternative sectors, such as senior housing, student housing, I believe is the way to go. We just need to be proactive rather than passive,” Watanabe said. He recommended that investors searching for rental residential yields think creatively and take a more proactive approach to find out what tenants are looking for.
After building a $1.2 billion portfolio in Japan, Watanabe said that one of Nuveen’s best-performing assets in central Tokyo is soundproofed accommodation pitched especially to musicians, demonstrating that providing solutions for specialised requirements can help to improve returns.
“It’s all about community, providing a good community through the multi-family living sector,” Watanabe said. “Senior housing in Japan is a good case where the elderly need support, and this is a proven asset class in Japan.”
During Tuesday’s one-hour session, which was sponsored by Yardi, Gaitanos explained that while investment yields on top properties have come under pressure in recent years, providing housing for Australia’s growing student population continues to offer advantages over even some of the most popular investment strategies.
After managing to grow his firm’s assets under management to A$3.3 billion ($2.6 billion) last year despite the pandemic, Gaitanos said that cap rates for student housing assets in Australia’s prime CBD locations have fallen from 6 to 7 percent five or six years ago to 4 to 5 percent now, although that yield may still compare favourably to current market darlings such as logistics, in light of recent market transactions.
Ramchandani, whose firm has made student housing investments in Japan, Australia and New Zealand, described the student accommodation segment as a good diversifier in investors’ residential portfolios, with key drivers including greater participation in higher education and an increasing desire to study at highly-ranked universities in big cities.
In diving into these non-traditional sectors, the panellists agreed that investors would need to become more familiar with the operational aspects of the asset classes. Watanabe sees this as part of the evolution of the real estate fund management industry.
“PE real estate is becoming quite similar to traditional PEs,” the Nuveen executive said. “They invest into operations. For PE real estate, we need to look at both sides of the equation — into the operations as well as managing the asset.”
View From the Fortress
Speaking from Sydney in what he termed “Fortress Australia”, Gaitanos said that despite lingering COVID-19 fallout and the continued closure of his country’s borders, the outlook for student housing investment Down Under remains upbeat.
“Education is our third-biggest export industry, and Australia is the globe’s third-biggest education market,” he said.
The bigger struggle stems from the scarcity of high-quality assets for sale in Sydney, though he expects that to change as universities look to raise needed cash by offloading non-core properties.
Looking forward to the gradual relaxation of travel restrictions, SC Capital’s Ramchandani, whose firm has $7.6 billion in assets under management in Asia Pacific, expressed confidence in the outlook for the region — and particularly for student housing — in the year to come.
“I think there’s a huge opportunity for investors in this market,” she said. “The macro fundamentals remain strong, and I think from a return perspective it’s very attractive compared to other asset classes.“
You can watch the full discussion above.
Stay Tuned for Sheds
MTD TV will be back again on 24 June to launch our Asia Logistics Real Estate Forum, which will feature speakers from GLP, Allianz, SC Capital, Logos, JLL and BW Industrial, as we bring together the region’s largest warehouse developers and investors.