Get smart and snap up tertiary student accommodation in capital

Wellington's Cumberland House. Photo / Supplied

Jones Lang LaSalle Hotels has been instructed to seek public expressions of interest, closing June 9, for one of New Zealand's largest private sector tertiary accommodation portfolios that has been put to the market by its owner, Australian based ING Real Estate Community Living Group.

The Ustay Portfolio in Wellington comprises a total of 550 beds within three recently refurbished buildings in downtown Wellington and close to Victoria University. Revenue from the three properties is primarily derived from long-term contracts with the university which effectively provide for a Government-backed income for more than 90 per cent of the beds over the 38-week academic year. Additional income is generated from short-term letting during the remainder of the year and by a number of established commercial tenancies including WINZ, Wilson Carparking and Vodafone.

Craig Collins, managing director Australasia for Jones Lang LaSalle Hotels, says he expects the portfolio will be highly sought-after by offshore investors seeking low risk, secure and high-yielding investments. "Compared to other markets, the Australasian region is considered highly transparent, very low risk with its real estate markets at or just past the bottom of the cycle," Collins says. "It is for these reasons that over the past six months we have sold over A$500 million in accommodation assets, to high net worth investors from Asia."

Collins says there is a critical shortage and consequential strong ongoing demand for tertiary education facilities in the Wellington region.

"This is largely due to the high barriers of entry given the inability to construct financially viable facilities in the current market."

Victoria University has a student population of about 22,000 and enrols more than 4000 new students every year. Approximately 55 per cent of enrolments are from out-of-town students who require accommodation during the academic year - equating to between 12,000 and 14,000 beds.

"The Ustay Portfolio comprises more than 20 per cent of the beds controlled by the university," Collins says.

He says there is the potential to increase the room yield by 60 beds and extend all three buildings as demand from the university continues.

"This portfolio is managed by one of the world's largest providers of on-campus tertiary education, Campus Living Villages, and the portfolio has recently been refurbished at a cost of over $7 million."

Simon Owen, CEO, ING Real Estate Community Living Group, says the fund is "divesting all non-core assets to concentrate on its Australian and US seniors' businesses".

Dean Humphries, New Zealand national director for Jones Lang LaSalle Hotels, says the sale represents an opportunity for a local investor to acquire a large social infrastructural portfolio with a mixture of private and public sector guaranteed income.

"With an oversupply of commercial buildings in most major centres in New Zealand, investors are now seeking opportunities to acquire assets that will produce immediate rental and capital growth," Humphries says.

"The Ustay Portfolio offers investors immediate rental upside based on the strong annual growth due to the critical shortage of student accommodation in the region. Further growth is expected from the ability to conduct short stay accommodation trades over summer to domestic and international tourists."