Bridging & Commercial Magazine Supplement - Purpose-built student accommodation

Guide to funding purpose-built student accommodation

in association with

Guide to PBSA

The student accommodation impact report Our recently commissioned research shows that purpose-built student accommodation is best for academic performance, technology and wellbeing.

Welcome to the Bridging & Commercial Magazine guide to funding purpose-built student accommodation, in association with Octopus Real Estate

As an active lender, we are proud to champion the growth of this sector and the positive impact it has on students.

Download the report at octopusproperty.com.

OctopusProperty @Octopusprop

Contents 4-5 Introduction to PBSA 6-9 The Octopus Real Estate process 10-13 Highlighted case studies 14 Contacts

Octopus Real Estate is the trading name of Bridgeco Ltd (Reg No 6629989), Fern Trading Ltd (Reg No 6447318), Nino Ltd (Reg No 9015082), Octopus Property Lending Ltd (Reg No 7531926) and Octopus Co-Lend Ltd (Reg No 8913299), Registered Office: 33 Holborn, London EC1N 2HT, registered in England and Wales and Dragonfly Finance S.ar.l. (Reg No B189290) Registered Office: Parc d’ActivitÊ Syrdall, 6 Rue Gabriel Lippmann, L-5365, Munsbach, Luxembourg registered in Luxembourg. Octopus Property Lending Ltd and Octopus Co-Lend Ltd are authorised and regulated by the Financial Conduct Authority.

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Guide to PBSA

Guide to PBSA

Students’ priorities are developer opportunities

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lobally recognised UK universities continue to attract domestic and international students. As a result, there is an ongoing demand for purposebuilt student accommodation (PBSA). In 2018/19, the number of full-time students outweighed PBSA bed spaces by 3:1. The sector is predicted to be worth over £50bn this year, making it a massive opportunity for developers. Ultimately, trends in this market are determined by the attitudes of end users: students. As a lender which backs UK PBSA schemes, Octopus Real Estate commissioned a survey of 1,000 students who are attending or have completed studies at British universities.

The study showed that PBSA positively impacts students’ enjoyment at university and how well they perform in their studies.

The report found that students in PBSA are more likely to have achieved a top-class degree than those living in halls of residence. When it comes to wellbeing, students in PBSA reported being more satisfied with their mental health.

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First-year students living in PBSA were almost twice as likely to report being satisfied with their physical health compared with those living in halls of residence. The findings suggest a demand and opportunity for PBSA developments that feature fitness facilities and amenities that cater to the whole student experience.

Despite tuition fees and living costs associated with full-time study, a significant number of students surveyed said they would pay more for extra facilities in their accommodation.

Students prioritised private bathrooms, their own cooking facilities, access to swimming pools, gyms and communal social space.

Today’s student requires reliable technology in their living space. The study found that students who had achieved a higher grade were more likely to have prioritised technology in their accommodation. Technology access is a key criterion in PBSA development.

The report also revealed differences in housing priorities between international and British

students. British students ranked meeting new people and value for money as most important.

International students were more concerned with practicalities, such as the commute to university and study space. International students also placed a higher premium on speedy and dependable WiFi internet access.

With international students representing a significant proportion of the PBSA market, it is beneficial for developers to heed their concerns and provide living space which supports their goals and academic priorities.

Though political outcomes could affect the numbers of international students in the UK, this type of accommodation will continue to be popular and improve the overall student experience in comparison to other options.

Octopus Real Estate recognises that PBSA is still a relatively small part of the accommodation on offer in the UK to students, estimated to account for around 30%. We are keen to have a positive impact on the student experience and champion the sector’s growth into the future.

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Guide to PBSA

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process

Funding process what brokers need to know

Guide to PBSA

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Guide to PBSA

Guide to PBSA

Borrowers we like As a non-bank lender, we offer flexibility, considering a wide range of borrowers.

There’s no cookie cutting. We consider each case on its own merits, aligning the finance to each stage of the development project.

You’ll need to provide:

»» proof of ID »» two proofs of address, for example a utility bill »» summary and background documentation

Our criteria covers: Different client types, including:

Onsite visits

SPV UK and offshore

During this stage, we will complete an onsite visit. Every site is visited by Jamie or Barney along with our underwriter, if it’s a larger loan.

Foreign nationals and expats Experience Strong track record

Final application Once you are happy with the terms, you sign an application form.

Skin in the game

Due diligence Credit history Good financial background No liquidation or bankruptcy

Once we’ve received the application form, we will commence the due diligence process. This includes legals, valuation, project monitor and our checks in line with Money Laundering Regulations. Assuming everything stacks up, we will continue to work towards your required completion date.

The process to completion An ongoing partnership Working with brokers and developers, our experienced and specialist team will be there at every stage of the development. Here’s what the process looks like.

Indicative terms

Completion Drawdown Once a deal has completed and a developer is ready to drawdown, they can receive funds in as little as 24 hours. Our project monitor will conduct monthly site visits to certify expenditure.

To find out terms, contact our experts Barney Iles or Jamie Rahder in the development team. Once they have all the information they need, and understand the developer objectives and requirements, they will send through indicative terms.

You’ll need to provide:

»» client details »» client track record »» source of equity »» development appraisal »» security details Fast-track credit approval When you are happy with the indicative terms and are ready to proceed, our underwriters will review the case so that we can progress to credit-backed stage. We don’t have set credit meetings, so with fast-track credit approval we can progress as fast as you need us to.

Pre-completion Broker

Details sent

Octopus Real Estate

Octopus Real Estate

Fast-track credit approval

Completion

4-6 weeks

Post-completion Borrower

Request a monthly drawdown

Project monitor

Octopus Real Estate

Octopus Real Estate

Project monitor site Review report Funds sent visit and certifies 24-48 hours

Please note that these timings are approximate only

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Guide to PBSA

Guide to PBSA

CASE STUDIES

Study 1 - EREC Estates Ltd We provided our record development loan with a £36m facility to EREC Estates Ltd for a 502-bed PBSA scheme in Coventry.

John Kerrigan, director at Arc & Co, brought this deal for a high-specification, modern development comprising of two buildings to us. The scheme serves both Coventry and Warwick universities and features a range of high-quality communal facilities and retail offerings.

The 27-month term loan is the third facility we have provided to EREC Estates Ltd. The scheme is scheduled to be completed in time for the 2019/20 academic year.

Gavin Eustace, head of residential development at Octopus Real Estate, says, “While we are seeing some geographical polarisation caused by oversupply, the student accommodation sector remains one of the most attractive asset classes for investors.

“It’s a sector that we like and, as long as the broader favourable supply-demand dynamics remain in place for this type of innovative and high-specification accommodation, we will continue to back schemes that require bespoke and efficient financing facilities.”

John adds, “The underlying proposition was extremely strong and supported by a very highcalibre sponsor and funder, both of whom were a pleasure to work with.”

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Guide to PBSA

Guide to PBSA

Study 2 - Atlas Land Ltd

Study 3 - Mapleisle Ltd

Our 10th PBSA transaction was to Atlas Land Ltd for a 225-unit scheme, together with three commercial units in the heart of Bristol city centre.

Developer Mapleisle Ltd needed a £8,754,000 loan to facilitate the development of 240 student apartments in Liverpool.

There are around 50,000 university students in Bristol and there remains a significant shortage of student beds, with the student to bed ratio at 2.2:1. Therefore, we provided a £16m loan for the creation of the scheme with Studio Hive Ltd managing the build-out and WRW Construction Ltd responsible for the design and build.

The scheme comprises of 36 studios and 204 beds in 30 cluster flats. The part-complete development had been purchased from a receiver by the proposed borrower with the building envelope 80% complete and fit-out progressed in a number of lower-floor rooms. However, a complete structural survey was completed in order to mitigate risks in the building structure.

The developer is a two-tier company based in Jersey, which shows our appetite to lend to offshore companies, while the principal behind the project has been involved in residential development since 1989 and was well known to Octopus Real Estate. Liverpool has seen strong development of PBSA, however, there is still a projected shortfall of around 18,000 beds for students in the city. With the asset being situated opposite Liverpool Hope University’s Creative Arts campus and close to the University of Liverpool’s School of Tropical Medicine and Liverpool John Moores University, it was in a prime location for students in the city.

The scheme is situated approximately one mile from the main University of Bristol campus and just 400m from Cabot Circus, the city’s main student nightlife hotspot, and will be completed in time for the 2020 academic year.

Alan Chaytor, managing director at Atlas Land, says, “This has been a significant investment by Atlas Land in a prime regional centre with a strong university base.

“I am delighted to be working with Octopus Real Estate and Studio Hive in delivering a quality PBSA scheme and helping to regenerate a derelict site into a desirable student scheme.”

Jason Collard, managing director at Studio HIVE, adds, “This development will add dynamism and new vibrant living spaces to the Dean Street area of St Paul’s, Bristol.

“This will continue the much-needed investment into the St Paul’s conservation area and continue the urban renaissance currently underway around Portland Square, Bristol.”

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Guide to PBSA

Guide to PBSA

Get in touch www.octopusproperty.com

Barney Iles Development Origination Manager t. (0)20 3935 4170 m. 07891 836 592 e. barney.iles@octopusproperty.com

Jamie Rahder Development Originator t. (0)20 3142 4971 m. 07843 374 033 e. jamie.rahder@octopusproperty.com 14

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Backing brokers and developers brick by brick • Award-winning property development finance for small to large projects • Covers refurbishments, conversions and ground-up builds in England and Scotland • Flexibility, fast-track credit approval and 24-hour drawdowns Get in touch with our specialist development team to find out more. Call 0800 294 6850 or email sales@octopusproperty.com.

Barney Iles

Jamie Rahder

Octopus Real Estate is the trading name of Bridgeco Ltd (Reg No 6629989), Fern Trading Ltd (Reg No 6447318), Nino Ltd (Reg No 9015082), Octopus Property Lending Ltd (Reg No 7531926) and Octopus Co-Lend Ltd (Reg No 8913299), Registered Office: 33 Holborn, London EC1N 2HT, registered in England and Wales and Dragonfly Finance S.ar.l. (Reg No B189290) Registered Office: Parc d’Activité Syrdall, 6 Rue Gabriel Lippmann, L-5365, Munsbach, Luxembourg registered in Luxembourg. Octopus Property Lending Ltd and Octopus Co-Lend Ltd are authorised and regulated by the Financial Conduct Authority.