Practical tips for sellers and investors in the student accommodation sector

Student accommodation has become an asset class recognised by investors. The number of students going to university continues to grow and it is reported that applications reached new highs in 2020, 2021 and 2022 (including applications from overseas students). [1]

Despite a challenging geopolitical backdrop over the last few years, and particularly over the past year with rising costs and inflation, the sector continues to remain resilient and a strong asset class for investors and developers alike, with many anticipating that PBSA activity will be at its highest for the year in quarter four in terms of acquisitions and sale of sites, portfolios and schemes.

One of the questions for sellers, developers and investors might therefore be how best to drive deals forward to ensure critical time limits are met. 

We have some practical tips for sellers and investors:

1. Exclusivity - Parties to any deal should carefully consider the length of an exclusivity period.For example, sellers don't want to be locked into an exclusivity period with a buyer who is not progressing as quickly as they would like, only to later withdraw from the deal with the seller regretting not having gone back to market sooner.Equally with deals taking longer, buyers will want to ensure they have a sufficiently long enough exclusivity period to get the deal done
2. Communication – There should be clear lines of communication between all of the parties and a clear appreciation of each party's timeframe, as student accommodation will tend to have its own time critical points. It may be easier to anticipate or remove obstacles on a call rather than rely on email correspondence. Video calls have been vital over the last three years when we have navigated our way through Covid 19. However, has the time now come to get everyone back in the same room at the start of a deal and then progress the deal with regular timetabled all parties video calls
3. Overage – Due to the current climate, we are seeing more Overages and NOI guarantees. Therefore, it is important that on development deals, the terms of any overage/NOI guarantees are agreed at the outset, to remove delay. In relation to NOI guarantees, where properties have already been built and are occupied, investors will want to ensure that the commercial terms are not only agreed, but that appropriate steps are undertaken to ensure that as many beds are let as possible, to result in an NOI that buyers are looking for.
4. Building Safety – There are a number of implications for "higher-risk buildings" under the Building Safety Act 2022 which need to be reviewed by sellers and investors. A higher-risk building is defined in the BSA as a building in England that is at least 18 metres in height, or has at least 7 storeys; and contains at least 2 residential units. Residential units are thought to include student accommodation. The BSA will impose a stringent new 'gateway' process, which is expected to prevent the development of higher-risk buildings unless the criteria at each gateway has been fulfilled, such as the submittal of plans or other relevant documents demonstrating the safety of the development (otherwise referred to as the 'golden thread of information'). Sellers and investors will need to ensure that each step of the gateway process is understood and complied with and that the golden thread of information is maintained to avoid unnecessary delay to the development and sale of higher-risk buildings.
5. EWS1 certificates – As sellers, developers and investors will already be aware, an EWS1 certificate is an External Wall System Fire Review certificate and is now a vital document for multi-storey multi-occupied residential building. Investors should therefore ensure that they have obtained the ESW1, and it is ready to upload to the data room before going to market
6. OEID number – In broad terms, as part of the Economic Crime (Transparency and Enforcement) Act 2022, an overseas company which owns (or is acquiring) a property in England or Wales, will need to register with Companies House and obtain an OEID (overseas entity identity number) having supplied and had verified certain information regarding its ownership. There are ongoing updating requirements. If one of the parties to the transaction is an overseas entity, it's important that the up to date OEIDs are available so not to delay the transaction.
7. Due Diligence – Sellers should prepare the data room and understand from the outset what is required, so as to ensure that once terms are agreed with a buyer, the deal can progress as quickly and seamlessly as possible. To do this, sellers may wish to liaise with their legal and other professional advisers to ensure the data room is correctly and fully populated. As lawyers, we have seen occasions where deals have been delayed because the sellers have not been organised and had the standard due diligence documents ready.

Howard Kennedy has a dedicated student accommodation team that is invested in understanding the challenges our clients face in this market and to provide strategic advice for domestic and international sellers, developers and investors.  Astrid Stanley, who is a partner specialising in commercial real estate and is a co-lead of the student accommodation group at Howard Kennedy, will be on the panel at the Bisnow Conference on 13 July 2023 discussing the following topic: "Development & Investments: Finance Deals and Capitalise On Demand". For further information on our team and services, please visit our student accommodation pages.