Allianz defies market fears with $460m student accommodation deal

Surprisingly the largest falls last week weren’t experienced in Victoria.
Surprisingly the largest falls last week weren’t experienced in Victoria.

German investment house Allianz is defying fears about the virus crisis crippling the student accommodation market and has snapped up a pair of student housing buildings in the heart of Melbourne for almost $460 million.

Student accommodation has been smashed as the virus struck, leaving some offshore students unable to get to their courses in Australia and universities at risk of losing $16 billion of revenue over the next four years, according to peak body Universities Australia.

But there are early signs the sector is shifting towards a recovery, with Scott Morrison last week flagging work on pilot plans for international students to return. About 350 overseas students are slated to come back to the ACT next month but the wait may be longer in Victoria as it deals with a spike in infections.

A bullish projection by EY even found international student enrolments could lift next year as they sought out nations that had put a lid on the spread of COVID-19.

South African company Redefine Properties and Melbourne-based partner Citiplan Property last year tapped real estate agency JLL to sell the Melbourne facilities they developed under the Journal Student Living banner.

Redefine bought a 90% stake in Journal Student Accommodation Fund in 2017 and then later bought into another trust to develop the towers. The Davidoff family, which controls Citiplan Property, held 10%.

The facilities have a total of 1391 beds and sold for $459 million.

The development of a Leicester St building, an 804-bed ­facility, was completed in 2018 while a 587-bed Swanston St project was completed in May. The Leicester St property sold for $269 million and Swanston St for $190 million.

Settlement on Swanston St is subject to travel restrictions for international students from select countries being lifted by mid-2021.

The deal also includes income guarantees.

Redefine’s financial director Leon Kok says a portion of the proceeds will be used to settle the loan facilities on the properties amounting to around $132 million and the remainder will be used to reduce Redefine’s other borrowings.

The deal will also secure the release of 60 million Cromwell Property Group shares from an encumbrance, with Redefine now intending to sell these on the open market. This could play into ARA Group’s $518 million partial takeover offer for Cromwell.

“The transformation of the property asset platform is necessary to withstand the impact of the pandemic whose trajectory is still evolving. Recycling out of non-core assets at the top end of their capital value will enable us to strengthen our balance sheet and crystallise the benefits of net proceeds,” said Redefine chief executive Andrew Konig.

Redefine said the student accommodation in Australia was a relatively new sector with limited supply and had recently attracted significant investor interest.

The Scape operation this year became the dominant player after finalising its $2 billion-plus purchase of the Urbanest portfolio that spans major capitals. It also bought Atira’s accommodation portfolio for $680 million last year.

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