Bank Hesitation - A "Staggering" Opportunity For Alternative Lenders

Banks have cooled lending on student accommodation, because of fears that the increasing student tuition fees could have a hampering effect on the sector...

Banks have cooled lending on student accommodation, because of fears that the increasing student tuition fees could have a hampering effect on the sector.

"We expect some cities, especially those with an over-concentration of student housing, and some universities to be hit by next year's rise in tuition fees," said Stewart Ward, head of the education sector at RBS Corporate and Institutional Banking in an interview with Reuters.

This drop in bank lending is not yet affecting the supply/demand dynamic in a noticeable number of places. Sure, this is partly because the lending tap only began tightening 6 months ago, but it is also because developers are finding themselves able to access financing for student-accommodation developments and conversions through other channels.

While the banks say that they are not reducing their overall exposure to the student sector, developers have noticed lending tightening from the banks over the past 6 months. Four sources, who declined to be named, told Reuters that Barclays had curbed lending to the sector in the last six months, putting a focus on long-term clients or developments with a pre-letting agreement in place.

However, Barclays' Head of Real Estate Brendan Jarvis said the bank had not reduced its exposure to student accommodation having completed two deals last month. "We will continue to lend into the sector where the commercial and risk terms make sense to our clients and our shareholders," he told Reuters.

Either way, there is a gap in the level of finance for the student property sector available last year (when the sector was the favourite of 11% of 22 banks surveyed by EC Harris) and this year (with the sector now the favourite of just 3% of banks.

The gap is being amply filled by institutional investors, REITs and sovereign wealth funds according to sources. Jo Winchester, director of CBRE's student housing team, described the level of interest as "staggering", and said the property consultant was talking to investors with a combined 2 billion pounds to invest.

In just the last few months many new big hitters have entered the sector, bringing their incredibly deep pockets with. US-based Oaktree Capital Management, which is backing UK developer Knightsbridge Student Housing, and Carlyle Group.

Dutch pension fund PGGM is in exclusive talks with Barclays Capital's infrastructure fund to buy a majority stake the UK's biggest developer of university campuses, the University Partnerships Programme, in what would mark its first foray into the UK's student housing market, a source close to the talks told Reuters.

"A number of developers will be looking at alternative routes to funding their developments," Jones Lang LaSalle's Director of Student Housing Philip Hillman told Reuters. "These could include joint ventures or forward commitments to sell which would include funding from a non-bank source," he said.



- Thursday 17 November 2011

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