In early 2016 we made an investment across several client portfolios in the BlueSky Student Accommodation Fund III. This was a direct investment for wholesale/sophisticated investors in the development and construction of a purpose built student accommodation building at 48 La Trobe Street in Melbourne.
The project was to develop a premium 793 bed student accommodation facility strategically located in the Melbourne CBD. Importantly, it was within walking distance of several tertiary education institutions, including the University of Melbourne and RMIT University.
What is the investment strategy?
In short, this was a development project by BlueSky as part of a 50:50 joint venture with Goldman Sachs. The total project cost was $124m comprised of $51m in equity and $73m of debt. In assessing this deal, we believed tapping into the demand for tertiary education in Australia, particularly from overseas students, was attractive. The location of the building was ideal with ease of access to world class universities, but also being in the China Town district of the Melbourne CBD. Once constructed, it was reasonable to expect high demand would lead to low vacancy rates and attractive income for investors.
How has it been going?
The biggest risk factor in any development is the construction, which was undertaken by a reputable builder under a fixed price contract. As with most large-scale developments there were issues along the way. A staged opening was abandoned, but the entire building was opened as planned in January 2019 with strong occupancy levels of 79% (higher than any other new facility).
What is the performance outlook?
In September the building was sold as part of the entire BlueSky student accommodation portfolio managed by Atria Student Living with sites all over Australia. An offer process required bids for the entire portfolio and each individual building.
Our building in La Trobe Street with its prime location in Melbourne and low vacancy rate led to it being the best performing asset in the BlueSky / Goldman Sachs portfolio.
Investors achieved a money multiple of 2x on exit, or double their original investment, in just over three years.
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