Blackstone Group (NYSE: BX) is one of the biggest names in the real estate sector. The private equity giant is one of the largest owners, buyers, sellers, and financiers of real estate. Its real estate arm currently has more than $200 billion of capital under management, more than a quarter of which is in its non-traded real estate investment trust (REIT) Blackstone Real Estate Income Trust (BREIT).
However, Blackstone doesn't just buy any real estate. It has a high-conviction, thematic investing approach. This means when the company makes a move into a particular property type, real estate investors should take notice. Its most recent deal saw the company make another investment in student housing. Here's a closer look at why Blackstone likes the sector.
Growing its student housing portfolio
Blackstone's BREIT recently unveiled its latest transaction in what has been a busy year for the non-traded REIT. It's forming a $784 million joint venture with Landmark Properties -- one of the largest owner-operators and developers of student housing properties -- to recapitalize and acquire eight student housing properties with 5,416 beds. The acquired properties are at leading U.S. universities with growing enrollments.
The transaction builds upon BREIT's presence in the student housing sector. The REIT's multifamily portfolio currently includes 20 high-quality student housing properties with 10,610 beds adjacent to top-tier universities. It handpicked this portfolio, investing $1.1 billion in a joint venture with Greystar Real Estate Partners, which took student housing REIT Education Realty Trust private in 2018 in a $4.6 billion deal.
This transaction is a building block for the two companies. They expect to work together in the future to grow their presence in the student housing market.
Student housing investing 101
Student housing fits squarely within BREIT's strategy of investing in cash-flowing real estate with growth potential. Jacob Werner, Blackstone Real Estate senior managing director, commented on the sector in the transaction press release, stating: "Student housing has a history of being resilient while generating strong cash flows, and this transaction is consistent with BREIT's strategy of acquiring high-quality, income-generating properties that have attractive long-term growth potential. We look forward to growing our presence in this asset class and working together on future transactions."
While the pandemic had some impact on student housing, the sector's future looks bright. That's evident in what student housing-focused residential REIT American Campus Communities (NYSE: ACC) had to say about the industry's outlook on its second-quarter conference call. CEO Bill Bayless said the "long-term fundamentals of our sector are strong and appear to be gaining tailwinds," noting that "tailwinds include record admission applications at the four-year public and private universities we serve and target, universities nationwide resuming in-person academic and social activities, and reinstating their on-campus housing policies for first-year students in the fall of '21."
Meanwhile, Bayless also pointed out that there's a "significant downward trend in national new supply continuing at least through the 2022-2023 academic year, including a currently projected decrease of over 20% in ACC markets." With demand for student housing growing while supply growth is falling, occupancy levels should remain high, driving above-average rental growth rates.
That leads American Campus Communities to see "robust internal growth and high-quality external growth in the years ahead." BREIT and Landmark see the same thing, which is why they're partnering on this deal and hope to grow their relationship in the future.
They're not alone. Brookfield Asset Management (NYSE: BAM), another major player in the real estate sector, is working on forming a joint venture to expand its presence in the space -- to the tune of $1 billion.
A sector that real estate investors won't want to overlook
Blackstone's BREIT is bulking up its presence in the student housing sector with its Landmark deal. That's because it expects the space to generate above-average returns in the coming years as it benefits from robust demand amid constrained supply. Those strong fundamentals are why real estate investors should look for ways to invest in the sector, including considering American Campus Communities.