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International Campus has launched a new student housing fund for institutional investors with the aim of building up a €800 mln portfolio in Germany.

The Munich-based student digs operator has raised €50 mln for the Luxembourg-registered fund in its first closing, and is targeting total equity of €250 mln.

'Talks with a number of further equity investors are currently under way,' said Horst Lieder, CEO of International Campus, which is investing in the portfolio with a 5-6% equity stake.

The vehicle, Luxembourg International Campus Student Housing I, will invest in quality accommodation operated under the brand The Fizz with a goal to exit the investment within the next five to seven years.

The fund is targeting an Internal Rate of Return of 14% on the equity.

'The strategy of creating a platform of this nature for a large-volume portfolio in the area of student housing provides an attractive product for institutional investors that is unlike anything currently available in Germany for this segment. This is another step forward in providing access for investors to student housing in Germany as a standalone asset,' commented Rolf Engel, chairman of the board of International Campus.

The fund has already acquired seven ongoing projects of International Campus in Germany, namely The Fizz Bremen with 336 fully let student apartments; The Fizz Berlin with 212 apartments; The Fizz Frankfurt which will offer 382 units in the Gallusviertel district; The Fizz Frankfurt II, with 390 apartments; The Fizz Darmstadt with 350 apartments, The Fizz Hamburg with 292 units and The Fizz Hannover with a further 302 units.

Earlier this year International Campus opened its capital to new investors with the acquisition by a group from Dubai of a 36% stake. 'We have found some active and experienced capital partners with whom we will build up our own portfolio of modern student accommodation and consequently continue to grow,’ Lieder said at the time.

Student housing goes mainstream

Student accommodation is emerging as an institutional investment product in Europe on account of its low volatility and stable cash flow. Germany is home to several student housing specialists, including Youniq, Europe’s only listed student housing firm. UK developer Crosslane recently entered the sector with the launch of a fund - the Victus European Student Accommodation Fund. The vehicle, representing a joint venture with German property company Bauer Capital plans to acquire, develop and build 3,000-5,000 student beds throughout Germany over the next five years with a target value of around €350 mln.

The UK, Europe’s most mature property market, has seen student housing transactions double to some €3 bn in 2012, fuelled by many large-ticket deals including the acquisition by Dutch pension administrator PGGM of a 60% stake in the University Partnerships Programme, the second largest provider of on-campus student accommodation in the UK.

Earlier this year, APG joined forces with LaSalle to raise £238 mln (€282 mln) for a joint venture vehicle offering developers whole loan construction finance on student housing schemes. The fund - LaSalle Residential Finance I (LRF I) - is to provide a £100 mln development loan, combining senior and mezzanine debt, for the construction of Urbanest’s 1,100 bed Westminster Bridge Road scheme. Similarly, the real estate fund management arm of M&G Investments recently acquired New Carnegie Court, a block of flats at the University of Aberdeen, from developer Unite.

In Continental Europe, Dutch investment manager Bouwfonds REIM, part of the Dutch Rabo Real Estate Group, is leading the way with the launch of the Bouwfonds European Student Housing Fund, with a targeted volume between €200 mln and €300 mln. The fund, with a core risk profile, focuses on major European university towns and cities in Germany and France, followed by the UK, the Netherlands and Scandinavia. It aims at an annual yield for investors of around 4% (IRR of 5.5-6.5%). 'If we compare the direct yields with those of more conventional residential real estate in our portfolio, these student residences are outperformers, despite their need for more intensive management,' commented fund manager Xavier Jongen.

These transactions point to the growing appeal of the student accommodation sector to a range of UK and international institutional investors, who are attracted by the annuity-type income stream, as well as the sector’s low volatility and reliable occupational market. ‘Compared to other alternative sectors, student housing offers the best proposition for stable cash-flow at mid-range yields,’ commented Jo Winchester, head of student housing advisory at CBRE. ‘In this era of low returns and low growth, it provides one of the most robust opportunities for development style returns of all the sectors.’