Blackstone’s plan to privatize ACC

Tooker House at Arizona State University, an ACC property. Photo by Bill Timmerman

In 2004, American university communities became the first publicly traded student housing company. In recent years it has been the only student housing REIT as the company led by Founder and CEO Bill Bayless has grown to own 166 properties with approximately 111,900 beds and own and manage a total of 203 properties with approximately 140,900 beds. ACC is set to go private soon as part of the global investment giant’s US student housing platform Black stone.

In a blockbuster deal announced on Tuesday, Blackstone subsidiaries have entered into a definitive agreement to acquire ACC in an all-cash deal that values ​​the student housing company at $12.8 billion. Blackstone vehicles, consisting primarily of Blackstone Real Estate Income Trust (BREIT) and Blackstone Real Estate Partners (BPP), will pay $65.47 per fully diluted share, including debt assumption. The transaction, which requires shareholder approval, is expected to close in the third quarter.

In a letter to ACC employees, Bayless described privatization as “the right strategic move.” He noted that over the past five years public equity markets have “been quite cyclical and at times the cost of our public capital has been higher than that of private institutional capital.” Bayless said that during these periods, many of the REIT’s private peers have been able to “enterprise in the areas of acquisitions and off-campus development more aggressively than allowed our cost of public actions”.

Bayless called Blackstone a “natural partner” and said Blackstone’s “financial resources and perpetual capital” will give ACC access to capital to increase off-campus acquisitions and development activities. ACC’s portfolio includes properties in 71 premier college markets, including Arizona State University, University of Texas at Austin, Florida State University and University of California, Berkeley. The majority of assets are within walking distance of college campuses, with approximately 24% located on campus.

Jacob Werner, co-head of acquisitions for the Americas for Blackstone Real Estate, cited ACC’s best-in-class portfolio and longstanding relationships with some of the country’s most distinguished and fastest-growing universities. He also referred to Blackstone’s “perpetual capital” and said it will allow ACC to invest in its existing assets and create much-needed new housing.

Major changes

In a November 2021 research paper, Dave Bragg and Jared Giles of the Commercial Real Estate Analytics Company Green Street describes the shift of large private equity firms like Blackstone to more perpetual capital strategies. With more assets under management and longer holding periods, private equity firms can capitalize on the advantages of scale and focus more on operations.

When BREIT acquired Home America Partnersa single-family rental company with more than 17,000 SFR homes last year for $6 billion, it said its investment in HPA would be backed by perpetual capital that would allow for a long-term approach to property management.

HPA was just one of many investments Blackstone made in residential real estate over the past year. In February, BREIT announced that it was buying Preferred Apartments Communities, a multi-family business with 44 properties and approximately 12,000 units, for $5.8 billion. Also in February, a joint venture between BREIT and Mark properties acquired a student housing portfolio of four properties with 2,248 beds in Tier 1 Markets assets. This deal was part of a $784 million joint venture announced in August to invest in eight student housing units totaling 5,416 beds in the USA.

“Blackstone’s acquisition of ACC is another notable example of the company focusing on non-traditional formats (such as lab space, student housing, data centers, single-family rentals, etc.) rather than bottom fishing in traditional properties such as enclosed shopping malls and offices. assets, which trade at deeper discounts to net asset value, but have tougher fundamentals,” Stephen Boyd, Senior Director, US Corporates, at fitch reviewsTold Multi-Accommodation News.

Michael Knott, Managing Director, Head of US REIT Research, Green Street, said MNH, “Blackstone has a multitude of platforms across all industries and a focus on portfolio companies, so it’s clear that the ACC platform will become an enviable part of the Blackstone family of companies.”

Student housing rebounds

Student housing rentals and investment sales slowed during the pandemic as U.S. college enrollment plummeted, but the market rebounded as students returned to campus, particularly in Tier 1 schools and 2. A March report from BerkadiaThe student housing team said total investment sales reached $9.6 billion in 2021 as new capital began to flow into the sector from foreign and domestic capital sources. Berkadia said there was a dramatic increase in wallet sales, which accounted for $3.5 billion of the market’s overall trading volume, up significantly from 2019 and 2020.

the Matrix Yardi The National Student Housing Report released in January noted that rent growth at the Yardi 200, the top 200 investment universities, was robust amid strong pre-rentals for fall 2022. Six universities with four or more properties had double-digit annual rent growth in December. Rent growth is approaching pre-pandemic levels, Yardi Matrix reports, with the average rent per room in December up 2.2% from a year earlier and just slightly below 2019.

“Student housing has always been a stable business and not economically sensitive, i.e. subject to inflationary pressures, geopolitical conflicts or stock market volatility. It has won the trust of institutional investors, and it is clearly a sector that has largely won the trust of Blackstone as it emerges from the pandemic,” Knott said. “The outlook remains strong in the student housing sector for the remainder of 2022.”

Christopher Merrill, Co-Founder, Chairman and CEO of Harrison Streetwhich has invested more than $18 billion in the student housing sector since 2006, said there was growing interest from large institutional investors seeking access to student housing space.

“We expect there to be continued long-term interest in the student accommodation sector due to its proven resilience during black swan events such as the pandemic and the global financial crisis, the importance that students and families value in-person learning and its relative stability to more traditional asset classes like office and retail,” Merrill said. MNH.

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