SHB Interview: GSA’s Nick Porter Provides Global Perspective on the Student Housing Sector

by Katie Sloan

Student Housing Business recently interviewed Nick Porter, CEO and Founder of Global Student Accomodation (GSA) and founder of Yugo, an international student housing management platform. Based in London, GSA owns student housing assets worldwide, including in Australia, Europe and the United States. Those interests give Porter a global view of the student housing industry. With the U.S. student housing industry enjoying very strong fundamentals, such as strong pre-leasing, rent increases and occupancy, SHB interviewed Porter to see what he is observing around the world.

SHB: What’s your view on student housing overall, as an industry?

Porter: Today is a very interesting time. We will never track the heady days of value accretion like we saw over the past 18 months in conventional multifamily and other asset classes, like logistics, across the U.S. and Europe. But in harder times, student housing never takes the downward trend at the same rate either. That is playing out right now. You want stability; you want resilience. I don’t think there’s anything ‘recession-proof,’ but I think student accommodation is recession-resilient. Having been through those ups and downs, operating in high inflationary environments and with high interest rates, as well as a significantly challenging recession and economic times, it comes back to one core element: the underlying consumer. Education’s a life choice. Families put endless amounts of time and energy into where their children will go to nursery all the way through to university. You don’t get to that moment and suddenly decide, ‘oh, let’s forget that now.’ Education is a huge focus for families. Through that, we’re the benefactors by providing great communities for people to live. They’re safe, and secure, and in great locations. We have been lucky in this environment to be able to raise our pricing — that offsets some of the inflationary cost pressures and interest rates. I often get asked from private and public investors about affordability and my air of caution has always been finding that right balance. You have to look longer term, beyond one year; we’re looking at 2024, 2025 and 2026 to find a balance between what economically and affordably works. We are not trying to press rents, because we’re not multifamily. We’re a different sector. At the end of the day, students and parents don’t care what they paid in rent three years ago, and they won’t care about what rents are in three years’ time. They’re buying a small window of time. And in that time, your ability to pay that difference is, at an individual level, much easier than say an office tenant. With an office building, you will have one tenant that can’t deal with the increase. Whereas, in student housing, you break it down to 800 individuals and 1,600 parents behind that, so it makes the economics work better. It’s been fantastic obviously to see the types of transactions in the market as well this year. The slight skeptics might say, ‘if these were done slightly before the current environment, would they have happened?’ I think they would have. They might have been priced differently, but I do think they’d still happen, because the fundamentals around occupancy, access, desire for higher education are still as strong today as they were six months ago.

SHB: Let’s narrow it to the U.S. market. What’s your take on the U.S. student housing market right now? From a leasing/occupancy standpoint, and then from an investment and development standpoint?

Porter: Every provider is out of the gate a little bit earlier on leasing, and indications are looking strong so far. Rental rates are growing. We feel buoyant about the 2023-2024 academic year. We’re focused obviously on renewing existing customers as well as bringing new customers into our market. We’re all slightly wary of the weaker markets and schools than we were. By the way, that’s the same around the world as well. From an investment position, everybody is drawing a breath over pricing right now. That’s really driven by the interest rate environment. From our perspective, we’re getting access to debt, however access to debt at the development end is limited. For a few developers that maybe aren’t as well capitalized or who want the higher leverage that’s traditionally available in a lower interest rate environment, it is a lot more challenging. I think it will remain so for quite some time. We’re talking to investors. We have a large partnership with Morgan Stanley Real Estate Investing in our U.S. portfolio. We’re looking at how and where we invest, and where we can drive value. Around the world, there remains a healthy interest in investment in the U.S. from the student housing perspective. 

SHB: What’s the update with what GSA and Yugo specifically have been up to, both in the U.S. market and then internationally as well? Can you also talk about how the introduction of the Yugo brand is going?

Porter: With Yugo, we’re trying to pioneer and be first in marketplace, but also learn from other sectors. In the creation of Yugo, which is the combination of all our operating brands around the world, plus our acquisition of UComm in the U.S., we wanted to create a branded, customer-facing business like no other in the sector — and we’re on that journey. This is a start, not the end product. We really want to be able to deliver a service level that is underpinned by awesome technology that starts to deliver what customers want. Ultimately that benefits the university, and the parents and residents. We are focused on Gen Z, our current student/resident, and we are starting to have a lens into Gen Alpha. We took three years to bring all our operating platforms together in earnest. We were slightly delayed through COVID. Our vision is to be that global operator; a brand across multiple markets around the world that benefits students’ mobility, and benefits our team’s mobility to work across a global network. Yugo operates from Seattle to Sydney and has a presence in over 100 markets across the world. And why I say underpinned by awesome technology is because Gen Z are digital natives. They’ve never known anything other than instant download.  I’ll be a little honest about our sector and say that not a huge amount of innovation has truly gone on. I’m not being critical, I’m looking at ourselves as well as I say this. Why is that? Student accommodation hasn’t had true mass international competition. Like many other sectors, it hasn’t had big disruption. Those two things combined have forced companies to be more agile, more effective, more efficient in thinking how they can improve service and delivery. And that’s what we try to do to ourselves. Every year we get older, but every year our customers stay the same age. They’ll still be the same age in 20 years’ time. We have a responsibility to innovate to the next generation because they are different. When we launched Yugo we were really focused on what students wanted and on how they live, learn and work with us. That’s how Yugo exists, in simple terms. It’s not just a head in a bed. Why is that important? We set a target that 25 percent of our workforce in our communities around the world by 2025 would be students that live with us or have lived with us. Unbelievably, we’ve already surpassed that number this year. We’re really proud of that, because we want to have a platform for young people to grow — beyond their studies. The other opportunity we see in the U.S. is that there is a significant export of students on an annual basis. Over 700,000 students leave the U.S. every year to study abroad. We facilitate that now across the world. You can live with us in Charlotte or Austin and you can live with us for a semester in Madrid. You’re still our customer, and as a parent, you know what you get. As a customer, you’re in our environment. You’re our consumer wherever you are in the world. And even if you’re traveling and want to drop in and use our facilities, as a Yugo customer, you can. You’re on holiday in Dublin with your parents, want some time out, come to our great spaces. We’re on a journey. There are some world-class developers and managers in the U.S. and Europe. But I don’t honestly see that some of those world-class developers and operators are of the same level when it comes to management. We see this as a model that will change and evolve. The U.S. is advanced because of the sheer number of operators versus owners. In 2022, we’ve had a lot of new acquisitions in multiple markets across the U.S. What I have loved about getting to know peers — people I’d call friends now — across the U.S. has been the openness and camaraderie. There’s obviously competition; that’s fine. But it’s been enjoyable, I will say. We will continue to innovate during 2023 and 2024, as a business. I think 2023 will be an opportunity to continue to grow across key markets. We also want to enter new markets across the U.S. and we’ve identified a list of new markets where we want to invest and grow. 

SHB: We’ve talked about higher than normal occupancy rates. What are your thoughts for the 2023-2024 academic year for GSA and Yugo?

Porter: High leasing rates are a trend in all of the top markets where we have properties. In 2021 and 2022, we divested in a few markets where we didn’t feel we were quite the right fit, however we feel really solid about the markets we’re in now. One of our focuses is to continue to build scale across our existing markets, as we like the economies of scale that come from that in terms of having a range of product and price point within each market. That’s also part of our strategy. From the point of view of how we see the marketplace now, we see opportunity. There are a lot of people developing with high leverage who will have to sell. Supply chains have become ever more challenging and costly. The industry can be very dependent on other countries, like China, for supplies. This year, a few developers missed on timing — not us — but that can have a serious impact, particularly in a growing interest rate environment. We see opportunities out there to look at those distressed properties as we look to consolidate and grow scale in certain markets, expand into new markets, and consider value-add projects. We’re very excited about taking older assets in our portfolio and start to really add value to those. We’ve had some really good examples of doing that in 2022 and have a blueprint moving forward.

SHB: You have considerable experience doing that internationally, as well, right?

Porter:  I’ve owned properties where I’ve taken the same asset and rehabbed and repositioned them three times in 30 years. Some of these older buildings are in fantastic locations and gentrification around university has gone on. Some universities are landlocked, where the urban spread has happened and land supply is critical. Everything we’ve done outside of the U.S. has been very urban — high density cities where land supply is short and you’re competing with many other asset classes. We’ve had to be innovative in how we drive greater value, greater revenue from the same asset.

SHB: What is your opinion on where we are with interest rates? 

Porter: I’m very cautious with regard to the interest rate environment we are in. I think there are many factors that can affect where the Fed takes this. I’m not sure we’re at the bottom yet. For GSA, everything’s fine — we haven’t got vacancy or demand issues, our rents are growing, and we cover our costs. That’s a true benefit of this sector, unlike many other sectors of real estate. The factor at play here is to not get caught on the wrong end of leverage. In 2008, we saw people with great portfolios and strong income who were overleveraged. They got caught. Capital is going to be king in that regard. You are going to see a lot more capital looking for those opportunities than in the past; it’s not going to be a trading environment. For GSA, we are well positioned to capture these opportunities, we’ve got great capital, great backers and great support from banks. Sadly, as always happens in these times, somebody’s loss will be somebody else’s gain. Everybody’s asking, ‘where does pricing go?’ We’re obviously building in some change on pricing — most investors are. We really don’t believe it will move like other sectors, because student housing hasn’t had the cap rate compression compared to other real estate classes. We also have the characteristics of our income and our occupancy, which is very different than other sectors. Taking a long-term, 36-month view, I think we’ll be through the peak of this market and back to normalized rates. One other issue is that we are going to get into the headlights of the 2024 U.S. presidential election before we know it. I think that’s very material, not only for the U.S., but the world. One of the big differences between a possible recession today and 2008 is that there are many large, long-term capital holders who don’t need to sell. The capital partners of the big players in student housing are global long-term institutional and sovereign wealth investors. They’re going to sit and wait as long as they have tenants — and it’s very likely they will have them in student housing. And we are going to see less supply coming to the market.

SHB:  You have a global perspective on the industry. What do you see in terms of differences in the characteristics of your student-renters from one market to the next? Is there anything that’s changing in Europe or other markets versus the U.S.? Do you see any trends among your residents that are noteworthy at this point?

Porter: We do see that. One misperception with U.S. students is that they don’t care about the environment. They do worry about the environment. It’s a global issue, and it is the worry for their future. The U.S., in general, is different than the other markets we are in. It’s a very mobile market. Many Americans freely cross state lines to go to school and work, and they need to live somewhere. A minority of our residents in the U.S. are international. In Europe, most of our residents are international. In the U.S., universities are actively looking to bring in more international students because they are high-paying students, and thus high-value students. Outside of the Power 5 and other top universities, there are some amazing universities in the U.S. that are highly sought after around the world. The choices for your children and mine are entirely different than a father living in India, who wants to give their son and daughter the first opportunity to access a college education — and that might be in a tertiary market in the United States if they can’t get it anywhere else. This is a huge step up for their son or daughter for the future, and they’d frankly do anything to get them there.  The one issue that can get messy — without going political — is when immigration policies are played with. Going from ‘we love you’ to ‘we hate you’ and back is not a stable environment. I’m speaking about Britain in particular right now. These are highly valuable, knowledge economy students. A government needs to take a long-term view with these students. If your country attracts foreign students — keep them. They’re good for the economy. Get them to live and learn and create business and work. I could talk for an hour on that point alone. I’m passionate about that. Conversely, we are seeing a growing number of students from the U.S. overseas. In July, we were in Tokyo and we met with the dean of Temple University, who was a huge advocate of bringing U.S. students to Tokyo for a semester. Now we have an agreement where they take most of our accommodations there for the university. Lastly, the largest difference between Europe and the U.S. is that Europe will take a lot longer to come out of this downturn than the U.S. There are multiple other factors going on across borders, obviously Ukraine being the first. Energy pricing during this winter is very, very real. Energy shortages are very, very real. It’s not about the cost of energy; it’s whether you can actually get it. That said, the numbers across Europe are up significantly in terms of applications.. As some markets go into a more recessionary environment, more people go back to university to retrain and rethink their careers. Students are staying in university longer — and we’ve seen that shift already in 2022.

SHB: It’s difficult to summarize all of Europe, but is occupancy and rental rate growth strong, the way we have been here in the States, or are the levels normal?

Porter: We are seeing the same there; high occupancy and high rental rates. The difference in Europe versus the U.S. is that student housing is much more all-inclusive. If your son lives with us in any city in Europe, you pay one amount and that’s it. You’re connected to water; you’re connected to power; you’re connected to super-fast internet. Other than your food, you don’t pay for anything else. In the rest of the world, when you rent as a student you are seeing these extreme increases in energy costs, and you have to pay it or get cut off. So suddenly, the PBSA — the purpose-built student accommodation, as its called in Europe — is actively a buffer for greater stability. At a headline level, occupancy and interest/application are absolutely up. The desire to be in this sort of accommodation is up. Having more properties is creating more activity for us; it’s more people seeing eyeballs on who we are. That’s having a direct effect on greater volumes and greater leasing. When we bought University Communities, it had 27 properties with 27 different websites. Now you go to Yugo, and it all filters through the one site. SEO-wise, attractiveness and social media-wise, we’re able to have multiple strands that gets the consumer.

SHB: If you look back to the Global Financial Crisis and COVID, if we could survive those things, we should be able to survive rising interest rates, right?

Porter: I agree with that, and I think that’s underpinned by the things we’ve just been talking about: higher education is a life choice — it isn’t something you just fritter away because you feel like you’ve got another choice. It’s fundamental to the family. I did unbelievable business in late 2008 through 2011. Some of the greatest properties I ever bought were purchased in that time. I was very lucky to have a lot of capital available when others were caught short. We’re in the same situation now — there is a lot of capital available, however, it is important to maintain a measured measured and balanced approach. What I think 2008 did, and what I think today is going to do is differentiate the good, bad, and indifferent operators in the business. The environment has been so benign in the years between that if you made mistakes you were fine. When you bring everything to the floor, the best will rise — and the poor performers will unfortunately fall aside. That’s just the nature of commerce. A lot of people in the sector today weren’t in the sector in 2008. In 2010 there were 1 million beds of purpose-built student housing across the U.S. Today there are 2.8 million beds; there’s been 1.8 million beds added in the past 12 years. These beds have been delivered by providers that have come to the market post-GFC. I think that that will be a leveler — how you are financed and funded. We’re already seeing across Europe some people running into trouble — their financing costs have gone up exponentially, they can’t borrow anymore, banks are pulling back, overdrafts are coming in, and debt facilities are drying. Our debt lending business is inundated with refinancing requests because banks are not lending to refinance now.

Interview by Randall Shearin and Richard Kelley

This article was originally published in the November/December 2022 issue of Student Housing Business magazine.

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