Students everywhere have a new landlord — the multi-billion dollar private equity company Blackstone is acquiring American Campus Communities (ACC) in a $13 billion deal. The deal will value the publicly-traded property company at $65.47/share, which was a 1 4% premium to its price on Monday evening.
The deal will give Blackstone exposure to 166 student-housing properties, with over 111,900 beds, in proximity to major campuses such as Arizona State University, UC-Berkeley, and Princeton.
An acquisition of this scale falls at the cross-section of two major happenings:
1) Blackstone’s great propensity to buy up properties in a post-pandemic world, thanks to monster fundraising in its real estate investment trust.
2) The student housing market is hot (and rife with opportunities for consolidation and M&A.)
The first point sort of speaks for itself — Blackstone, one of America’s largest real estate investors, has raised over $50 billion LTD for its unimaginatively-named Blackstone Real Estate Income Trust (BREIT), a non-traded REIT product which the company started five years ago.
In 2021, it went on a bender: investors handed the BREIT (which reads as a sad spelling of Brexit) more than $24 billion in fundraising, multiples more than any other REIT sponsor, according to a Stranger Investment Banking report.
All that dry powder has been slowly working its way into the market. In July 2021, the BREIT made headlines when it acquired a $5.1 billion portfolio of affordable apartments for “low-income families”, and then chased it down with another $6 billion housing acquisition in the same month.
Then, like all mysterious things (think: Roswell, Cicada 3301, Nicolas Cage), the BREIT vanished from business zeitgeist for awhile. It surfaced in headlines again when Blackstone made a $784 million joint investment with Landmark Properties to acquire a student housing portfolio in August 2021.
And now, over a year later, the BREIT is at the center of this massive takeout. That’ll certainly put a dent in the amount of unallocated funds.
That leads us to this second point, which is that the student housing market is hot. All of our resident 20-somethings who have spent time at a university will know exactly what we’re talking about. Turns out that students attending college need a place to stay… (For the folks at Berkeley, this next part is going to hit especially close to home.)
Private equity groups and REITs have been at the center of huge changes in the student housing business in the last decade.
Off-campus housing, which represents a healthy portion of ACC’s portfolio, is sort of a no-brainer. You don’t need a campus’s permission or blessing to necessarily go secure the land, permits, and other resources to build a large development near a campus.
However, off-campus housing generally does compete directly with university housing such as dorms and residence halls. That’s why some organizations have decided to partner with a university to build their portfolios, but with all the bona-fide guarantees and stamps of approval of the university.
Take the University of Kentucky for example, which started a partnership with the Education Realty Trust in 2012 to completely redevelop its student housing. They built 14 new residence halls at a cost of more than $449 million. The halls featured more than 6,850 beds.
Unlike some universities, which build and then manage their own housing, the EDR actually existed as a silo to manage and maintain residence halls in a public-partnership with the university. This was extremely unheard of at the time, and has been extremely profitable. For the six months ended Jun. 30, 2018, the EDR booked over $161 million in leasing revenue… which we presume represents just one semester worth of income at a mix of on-campus and off-campus housing projects.
Anyway, the short of it is the EDR got taken out in a $4.6 billion acquisition by Greystar just a quarter later.
And guess who was there… you guessed it, the BREIT. Blackstone acquired $1.2 billion of the EdR Student Housing Portfolio in a joint venture with Graystar, which didn’t explicitly mention the Kentucky deal, but included a healthy portion of the company’s housing portfolio.
So what’s the point? Housing is limited, NIMBYs are plentiful, and student housing is essential. And Blackstone, which has deep pockets, is allocating an insane amount of money to take a monster share of the student housing market.