Investing

Blackstone Builds a London Tower for Students


(Bloomberg) — The tallest tower to open next year in London's main financial district won't house bankers or office workers. It will be a student dormitory. The 33-story building's owner is Blackstone Group (BX), the world's largest private equity company. Blackstone entered the U.K.'s student-housing market four years ago and has so far invested more than 400 million pounds ($665 million). Rents have risen even as Britain endured its worst property slump in more than three decades. "There is a chronic imbalance between supply and demand in this sector," said Stuart Grant, the Blackstone executive who oversees the student housing unit. The average occupancy rate in the industry is 99%. In the City of London, 91% of office space is leased. The shortage of accommodations for London's growing student population has caused average rents to rise by an annual 5% over the last six years, Knight Frank said on Nov. 23. The figure compared with an average gain of 0.6% for all commercial properties, the London-based real estate broker said. Nido Spitalfields, Blackstone's second student hall in the U.K. capital, will have space for 1,204 pupils paying as much as 300 pounds a week for an en suite room. The 344-foot skyscraper is due to open in the middle of next year. It will overlook Broadgate, the City of London office complex half-owned by the New York-based company, and will cost about 205 million pounds, according to Grant. tight market means rising rentsThere are 270,000 full-time students in London, according to a survey published in March by Drivers Jonas, a broker based there. That number will increase by about 40,000 within three years as overseas students keep flocking to London and more U.K. teenagers choose higher education in a weak job market, the firm estimates. More than 60,000 people attend three of the U.K. capital's largest universities: London Metropolitan, Middlesex, and the University of Westminster. "Given the lack of finance currently available for development and the constrained pipeline, rents are likely to continue to rise for the foreseeable future," Knight Frank said last month. Nido Spitalfields will be similar to Blackstone's first student-housing project in the U.K., a pair of 16-story towers in the King's Cross area of north London that were completed in 2007. The property has 846 rooms, or "cubes" as the company calls them. Most have 16.6 square meters (179 square feet) to 18.4 square meters of space. The expansive foyer contains a manned security desk alongside a kiosk selling Starbucks coffee. It is spotless, with the only sign of student mischief a supermarket trolley lurking in the elevator. The lobby wouldn't look out of place in Canary Wharf, the East London cluster of glass-and-steel buildings occupied by such companies as Barclays, Credit Suisse Group, HSBC Holdings, and Citigroup. Most tenants are foreign studentsMost rooms in Nido King's Cross cost 245 pounds to 270 pounds per week. Internet access is free and students have the option of paying for a maid. That's expensive, even by London standards. For the same price, they could rent a local one- bedroom apartment with a separate lounge, kitchen, and bathroom. About 80% of the tenants are from outside the U.K., according to Blackstone's Grant. Parents are often willing to pay for accommodation, especially in the first year, if their children are guaranteed security in a city with which many are probably unfamiliar, he said. U.S. and Chinese students make up the largest foreign groups. In the U.S., most campuses offer some form of accommodation. Only around 20% of London students can live in rooms provided by their university. "Higher education is increasingly a global business," Grant said. "We're providing a safe environment for foreign kids coming to London." Blackstone plans to build a third residence for students in London next year on a site close to Notting Hill, a fashionable district in west London, Grant said. The building's 272 rooms will be available starting in 2011. U.K. student housing giant: UniteBlackstone Real Estate Advisors, the firm's property-investment and management unit, has raised more than $29 billion since it was formed in 1992, according to its Web site. The firm started investing in student housing and properties such as pubs and nursing homes about four years ago, as European retail and office buildings were becoming too expensive, Grant said. Blackstone hired brand consultant Tyler Brule in 2005 to design Nido, which means nest in Spanish and Italian. Blackstone will operate student housing with about 2,200 beds by mid-2010. The biggest provider of this type of accommodation in the U.K., Unite Group, has about 38,500 beds, according to its Web site. Unite's biggest shareholders are Fidelity International and JPMorgan Chase, according to data compiled by Bloomberg. "We offer some defensive characteristics in a tough economic environment," said Mark Allan, Unite's chief executive officer, in a telephone interview. "Student accommodation is now firmly recognized by investors as providing that." Blackstone will probably sell the Nido business within three years, Grant said. This could take the form of an initial public offering to create a real estate investment trust, he said. The U.S. firm has already purchased a site in Barcelona to build accommodation for 850 students. It is looking at others in Paris, Sydney, and Singapore. To contact the reporter on this story: Chris Bourke in London at cbourke4@bloomberg.net

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