Private Equity Firms Invest in London Dorms

Eager to capitalize on London’s limited college dorms, Blackstone Group, Carlyle Group and Oaktree Capital Management have been investing in accommodations for scholars.


College students account for one out of every 20 Londoners — with one quarter from abroad. Yet London’s 40-plus colleges and universities provide dorms for fewer than one out of five of the city’s 410,000 students.

Eager to capitalize on this supply-demand imbalance, Blackstone Group, Carlyle Group and Oaktree Capital Management have been investing in accommodations for scholars.

“Student property has delivered consistently healthy returns over the past five years,” noted James Pullan, head of the student property sector at U.K. real estate firm Knight Frank, in a November report. Returns from student housing have been running at an appealing 13.5 percent a year.

Carlyle is building a 400-bed facility in North London and plans to erect three more in the city by 2013. Thus far it has invested $270 million.

Crucial to Carlyle’s business model are foreign students with parents able to pay steep sums to see their kids pleasantly situated in a safe, central London neighborhood. A typical room in Carlyle’s first facility will go for the equivalent of $1,400 a month. The average one-bedroom in the neighborhood costs $2,500.

“Affordability is obviously very important,” says Robert Hodges, managing director of Carlyle’s European asset management division. “But there is generally still strong enough student demand for there to be good business for us.”

Blackstone is the seasoned upperclassman of the market. It has already invested $540 million in its Nido Student Living project, which comprises two luxury complexes. Blackstone’s intention was to create a “five-star” product targeting students from wealthy foreign families, says Maureen McDermott, director of student accommodations for Nido, which manages the residences. Eighty percent of Nido’s residents are from outside the U.K. The 33-story Nido Spitalfields offers floor-to-ceiling windows and a gym. Rents for a single range from $1,786 to $2,314.

In contrast to Blackstone, Oaktree is pursuing the hoi polloi among students. “Blackstone targets the absolute top end of the market — the American Ivy League guys,” scoffs Robert Crompton, CEO of Oaktree’s Knightsbridge Student Housing. “Oaktree will target the majority of students, not just those from overseas.” The firm is about to acquire its first facility, for $100 million, and will charge students a comparatively affordable $1,050 average rent.