Investment of the Month:
Mansion Student Accommodation Fund
The Investment objectives in a nutshell:
• To provide investors with exposure to the UK private student accommodation market
• To acquire and hold a portfolio of freehold or long leasehold properties nationwide and manage these assets for optimum return
• To target capital growth through careful acquisition and management of suitable
properties
• To achieve target IRR of 10-12% pa before tax
The Investment Strategy:
• To purchase existing purpose-built halls of residence in the UK’s top 30 (by studentpopulation) towns and cities which are sub divided into cluster flats with communal
kitchen, lounge and bathroom facilities
• Let out predominantly to post 1st year students
• Aim to achieve capital gains by focussing on selective sites where a combination of
location, supply versus demand imbalances, and rental potential is greatest
• Acquire property at a 10% discount to external, independent valuations
• Acquire the freehold interests of properties or the long (i.e. 125 year) leasehold interests
in individual ‘cluster flats’ or studios within purpose-built accommodation
• As a result of the acquisition of such assets at a discount to the market value, the Fund
should enjoy a positive impact on its NAV
• Properties bought by the Fund will receive a five-year rental undertaking from Mansion
Capital Partners Limited
• The Fund will receive a refurbishment bond requiring Mansion Capital Partners Limited
to undertake such works as are necessary to upgrade the accommodation to a modern
standard
Background to the fund:
Since 2007, market research by Drivers Jonas, King Sturge, Savills and Knight Frank in particularhave highlighted the current size and past and expected growth of the UK market for private student
accommodation.
According to these sources:
• higher education student numbers grew by 10.1% between August 2008 and August
2009;
• on present trends, there will be over 3 million students in the UK by 2014;
• foreign student numbers increased by 13.6% between academic year ending August
2008 and August 2009; and
• post-graduate student numbers now account for 24% of the total student population and
are expected to continue to grow.
The same sources point out that more than 50% of students currently live in Houses of Multiple
Occupation (“HMO”) i.e. private, rented buildings not designed for this purpose. This figure varies
from 50% in locations such as Manchester to over 80% in Plymouth. In 2007 the introduction by the
government of a licence requirement for HMOs added to the administrative burden of HMO owners.
With only 130,000 purpose-built beds being created between 1995 and 2008/9, there is an imbalance
of supply to demand.
As a consequence of the above, average rental growth over the last six years to 2008/9 has averaged
5% annually, with 7% being recorded in the Greater London area over the last 3 years. London’s
situation is particularly acute; according to Drivers Jonas’ 2009 report “just 18% of the 270,000 full-time
students in London can access a purpose-built bed space with just 4,011 beds under construction”.
The Investment Adviser and the Property Adviser believe that the student accommodation supply
shortage is likely to continue for the foreseeable future and this view is supported by Knight Frank
in their 2010 market report which states that “preliminary numbers from UCAS as at October 2009
indicate that the occupational demand will remain strong in the context of the wider economic volatility,
while rental growth will continue at similar levels in the period up to 2012.
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