February 26, 2020 / 6:09 PM / a month ago

Breakingviews - Blackstone bets big on Boris British housing hedge

The ticker and trading information for Blackstone Group is displayed at the post where it is traded on the floor of the New York Stock Exchange (NYSE) April 4, 2016. REUTERS/Brendan McDermid

LONDON (Reuters Breakingviews) - Blackstone is betting big on Britain’s property market. But the $6 billion that Steve Schwarzman’s private equity colossus is paying for iQ Student Accommodation is not really an endorsement of Prime Minister Boris Johnson’s execution of Britain’s exit from the European Union. Rather Blackstone is wagering that whatever happens with Brexit, the global allure of an English education will endure.

True, it is the largest-ever private real-estate transaction in Britain, according to Blackstone. And the sellers, Goldman Sachs and the Wellcome Trust, have grown the business while the British people have agonised over their divorce from the EU. The company was created through the purchase of a 2 billion-pound housing portfolio in 2016, followed by the 870 million-pound purchase of Pure Student Living in 2018. The number of beds has grown by 56% to 28,000 in four years.

Though Blackstone is paying up for iQ, it is getting above-average growth. Under Goldman’s ownership, the company increased iQ’s rental growth by 5.2% in the 2018-2019 financial year, higher than the market average of 2.6%. That also beat London-listed rival Unite Group’s 3.4% bump. Unite last year acquired Liberty Living’s UK assets in a 1.4 billion-pound deal.

The real takeaway seems to be that no matter what happens with Brexit, the world’s striving classes see value in British degrees. Britain has three of the top 10 globally ranked universities, according to Times Higher Education, with Oxford and Cambridge at the top of the list. The UK government wants to increase educational exports to 35 billion pounds by 2030 from 20 billion pounds in 2016.

And Johnson is backing the sector. His government has targeted growing international students from 422,000 to 600,000 by 2030. The reinstatement of two-year working visas for university graduates also aids the UK’s continued attractiveness. U.S. President Donald Trump’s antagonistic approach to China has also moved many mainland students away from higher education in the United States.

It’s also an under-supplied sector. Property agent Knight Frank reckons there are three times as many full-time students in Britain as there are beds being built by iQ and its ilk. Even with the more than 32,000 student beds in the pipeline, the ratio of students to beds is still at around 2.8. Blackstone is leveraging itself to British intellectual power, if not the brain currently occupying Downing Street.

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