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Pref. Equity, Student Accommodation Development in Porto, Portugal

Porto
,
Portugal
DEAL
001104
POSTED ON
November 13, 2020
INVESTMENT SUMMARY
IRR
20%
Multiple
1.7x
LTV
79%
First Year CoC
NA
Stabilised CoC
NA
Status
Funding
Deal #
001104
Asset Class
Student Accommodation
Strategy
Development
Capital Type
Preferred Equity
Deal Size
22.2
m
Investment Size
4.1
m
Holding Period
2.5 Years
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INVESTMENT HIGHLIGHTS
  • The building is located in close proximity to the Porto University, the Polo Universitario metro line and local amenities, in a highly popular area of Porto. Rents are increasing rapidly in the area which continues to benefit from the growing student population.
  • Porto has a noticeable shortage of student beds, with the current provision of student accommodations, the students to bed ratio is 11:1. The demand for student accommodation is not only represented by international students, but also by Portuguese students who study and live away from their hometown. In 2017/2018 both segments represented more than 165,000 students who needed accommodation, ranging from relatives’ home to PBSA.
  • The property will feature a total of 230 units and 241 beds with 209 Studios, 9 Premium Studios, 1 Adapted Studio, 11 Twin Rooms. The units will be distributed across 13 storeys with an area of around 500 sqm per floor. The single studios will average 17.2 sqm and Twodios 26.9 sqm.
  • The building has a circular design which will allow all rooms to have private balconies and a roof terrace. The land’s total area is approximately 1,472 sqm. Estimated GDV of €30.4m, based on a yield of 5.5% (JLL Valuation). Land price of €7.3m. Total development costs, including land, construction and interest, equate to £22.2m. Planning for the development has been secured; the 36 month project timeline consist of 24 months of development followed by 12 months of operations until stabilisation.
  • The Sponsor has recently secured €18.2m senior financing facility for the development and is looking for a preferred equity investor  for up to €4.1m that will sit in seniority just after the senior tranche. The Sponsor is contributing with €400k and is offering a profit share investment opportunity secured with a priority coupon.  Investors will have 2 options to receive a 12% PA coupon and 60% profits share at the end or a fixed 16% IRR upon exit.
KEY DEAL POINTS

Location:

The subject site is located in a mixed residential / university zone in Paranhos parish, approximately 3km north of the Porto City centre. The site is accessed from Rua Dr. Manuel Pereira da Silva to the north and the Rua Manuel Pacheco de Miranda to the west. The site comprises an undeveloped land plot with vegetation or gravel ground cover and is currently
used as an informal car parking area. The land’s total area is approximately 1,472 sqm.

Communications:

The site is well located within the universities areas To the right it can be seen the walking distances to each of the university sites. It also has direct access to the metro yellow line which takes 20 mins to the centre of the city.

History/Previous uses:

Historical records from the 1940s shows the site to be undeveloped (agricultural use). Anecdotal information from residents indicates that the site has never been developed with buildings.

Porto Student Accommodation:

Porto has become fashionable and thus the number of students is continuously growing, reaching 58,200 and representing 16% of total students in Portugal. We are witnessing an increasing and diverse number of nationalities coming straight to Porto, counting more than 7,400 foreign students. In addition, there are 18,000 Portuguese students living out of their hometown, totalling more than 25,000 students with accommodations needs.Following the national trend and in line with Lisbon, international students are responsible for the turnaround in the decrease of the number of students, evidencing the importance of this market. Porto has 1,250 rooms at 15 University and Religious Student Housing. Usually they offer low rents ranging from €165 to €430/ month/room. Regarding Private Apartment Operators, JLL count more than 11 players with a total supply of 420 rooms. The existent operators are small.

KEY FINANCIALS
ABOUT SPONSOR
Seasoned Sponsor
A reputable multi-cycle industry operator. Has less than 15 years of verifiable track record and less than $500m in turnover annually or less than $10bn of AUM.
FURTHER IMAGES
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DEAL DATA ROOM
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INVESTMENT SUMMARY
Strategy
Development
Asset Class
Student Accommodation
LTV
79%
Deal Size
22.2
m
Closing
Capital Type
Preferred Equity
Investment Size
4.1
m
Net IRR
20%
Multiple
1.7x
Holding Period
2.5 Years
INVESTMENT DETAILS
  • The building is located in close proximity to the Porto University, the Polo Universitario metro line and local amenities, in a highly popular area of Porto. Rents are increasing rapidly in the area which continues to benefit from the growing student population.
  • Porto has a noticeable shortage of student beds, with the current provision of student accommodations, the students to bed ratio is 11:1. The demand for student accommodation is not only represented by international students, but also by Portuguese students who study and live away from their hometown. In 2017/2018 both segments represented more than 165,000 students who needed accommodation, ranging from relatives’ home to PBSA.
  • The property will feature a total of 230 units and 241 beds with 209 Studios, 9 Premium Studios, 1 Adapted Studio, 11 Twin Rooms. The units will be distributed across 13 storeys with an area of around 500 sqm per floor. The single studios will average 17.2 sqm and Twodios 26.9 sqm.
  • The building has a circular design which will allow all rooms to have private balconies and a roof terrace. The land’s total area is approximately 1,472 sqm. Estimated GDV of €30.4m, based on a yield of 5.5% (JLL Valuation). Land price of €7.3m. Total development costs, including land, construction and interest, equate to £22.2m. Planning for the development has been secured; the 36 month project timeline consist of 24 months of development followed by 12 months of operations until stabilisation.
  • The Sponsor has recently secured €18.2m senior financing facility for the development and is looking for a preferred equity investor  for up to €4.1m that will sit in seniority just after the senior tranche. The Sponsor is contributing with €400k and is offering a profit share investment opportunity secured with a priority coupon.  Investors will have 2 options to receive a 12% PA coupon and 60% profits share at the end or a fixed 16% IRR upon exit.
INVESTMENT HIGHLIGHTS

Location:

The subject site is located in a mixed residential / university zone in Paranhos parish, approximately 3km north of the Porto City centre. The site is accessed from Rua Dr. Manuel Pereira da Silva to the north and the Rua Manuel Pacheco de Miranda to the west. The site comprises an undeveloped land plot with vegetation or gravel ground cover and is currently
used as an informal car parking area. The land’s total area is approximately 1,472 sqm.

Communications:

The site is well located within the universities areas To the right it can be seen the walking distances to each of the university sites. It also has direct access to the metro yellow line which takes 20 mins to the centre of the city.

History/Previous uses:

Historical records from the 1940s shows the site to be undeveloped (agricultural use). Anecdotal information from residents indicates that the site has never been developed with buildings.

Porto Student Accommodation:

Porto has become fashionable and thus the number of students is continuously growing, reaching 58,200 and representing 16% of total students in Portugal. We are witnessing an increasing and diverse number of nationalities coming straight to Porto, counting more than 7,400 foreign students. In addition, there are 18,000 Portuguese students living out of their hometown, totalling more than 25,000 students with accommodations needs.Following the national trend and in line with Lisbon, international students are responsible for the turnaround in the decrease of the number of students, evidencing the importance of this market. Porto has 1,250 rooms at 15 University and Religious Student Housing. Usually they offer low rents ranging from €165 to €430/ month/room. Regarding Private Apartment Operators, JLL count more than 11 players with a total supply of 420 rooms. The existent operators are small.

Funding
SUMMARY
Opportunity to participate in the development of a unique PBSA project in a prime University location in Porto, Portugal. The Sponsor comprises of an experienced developer and an institutional investor that are contributing +10% of their own equity and offering this investment opportunity with returns ranging 16% to 23% IRR (1.5 - 1.7x) for a 30 months investment period.
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