Forum’s $1.7bn acquisition of Alignvest Student Housing REIT will close later this year
In a deal set to close later this year, Forum Asset Management will acquire the entirety of Alignvest Student Housing Real Estate Investment Trust’s portfolio, making Forum the largest student housing provider in Canada.
With asset acquisitions continuing to close and several large developments underway in key post-secondary markets, Forum is at the leading edge of one of the most under-supplied housing types in the country.
Green Street News spoke with Aly Damji, a Forum managing partner of real estate, to learn more about the Alignvest acquisition, what other opportunities there are for student housing and what investors who are new to the space need to be aware of.
How does it feel to be at the forefront of student housing in Canada?
The majority of the universities in Canada are facing significant fiscal pressures, brought on by tuition freezes on domestic students and the ability for universities to construct student housing in a timely way without private sector support is difficult. Permanent residency via the student visa route is also something Canada will continue to endorse, given the access to a highly educated labor pool, declining fertility rates and an aging population. The demographics underline why we invested and why we have high conviction in student housing.
Furthermore, unlike other mature English-speaking student housing markets like the U.S., U.K. and Australia, Canada’s student housing market is still in the early stages — the second or third inning. By way of comparison, our provision rate in Canada, which is the number of student housing beds for each student, is 10% versus 27% and 16% for the U.K. and U.S., respectively. The optimal number is 35%, so we’re well under that with effectively only one bed for every 10 students.
With the Alignvest acquisition, you’ll be the largest provider in Canada. How did that come about? Were they initially looking to sell or did you seek out buying their portfolio?
The answer is both. The principals at Alignvest, they built Alignvest Student Housing REIT to sell. Last year, we approached Alignvest but they weren’t ready to sell as they were in the midst of a number of acquisitions. We re-approached them again this year, because we’re a persistent group here at Forum, and the stars aligned.
From Alignvest’s perspective, they were open to selling to us because our proposed structure allows their existing unitholders to roll their investments and benefit from not only our growing pipeline of new best-in-class developments upon stabilization, but also the long-term supply/demand imbalance in the student housing space.
It seems like there are plenty of upsides to student housing — more compact units, higher turnover, strong demand, getting to keep rents at pace with the market — so why do you think more developers in Canada haven’t gotten into student housing?
Student housing does require more operating expertise. It is certainly not as extreme as hotels, which have daily leases, but it has a high degree of operating management requirements, not too dissimilar from independent living in seniors housing.
What makes us good at what we do is at the end of the day is that we are mindful that this is housing for Canada’s future leaders. What we know from working with students is that they attribute a large part of their well being to a sense of community, and to be a successful student housing developer, you need to foster a sense of community, which comes through programming, through roommate matching, through various events and a lot of focus on mental health and wellness. For those reasons, I think that it’s kept developers away.
More developers are thinking about student housing as it appears to be one of the few forms where a pro-forma can theoretically pencil, unlike traditional apartments and residential condos. However, I would caution that student housing requires operating expertise.
How do the returns on student housing compare to a typical apartment building?
On a risk-return basis, we like the asset class. The returns need to be higher given the operating element — for example, compared to a multifamily building where turnover is low, we see turnover close to 50% per year, which creates risk, but also some opportunity when the market is as supply-demand imbalanced as it is currently.
What’s the most challenging part of getting student housing built right now? I would imagine it’s the same challenges as rental in general?
Yes, I would say very much so the same as rentals in general. And when you think about student housing, in our view, it should be classified as a type of affordable housing. Given the 400,000-bed shortfall of student housing across the country, students are currently occupying traditional units that could otherwise be available for non-students. Our view is that developing student housing is a two birds-with-one-stone approach. Every time you create new student housing, you free up an existing unit or bed of non-student housing for the general market to lease and take up. For that reason, we think more needs to be done.
What else is there that you’d like to see done?
Reducing taxes, charges and delays will result in more housing being built sooner and on a less costly basis. At the end of the day, governments should be motivated and incentivized to ensure students are on the best financial footing as they come out of school.
Forum filed plans recently for a large student housing development near Toronto Metropolitan University. Is there anywhere else you’re eyeing for new development?
In addition to ALMA @ Cabbagetown, we also have a pipeline of an additional 3,000 beds located across major Canadian markets offering sustainable, highquality housing solutions for students, contributing to both local housing markets and student well-being.
Some of our upcoming projects include ALMA @ Guelph Phase 2, which will add approximately 489 units, bringing the total to over 650 beds for ALMA Guelph by 2027. We plan on breaking ground in Q1 2025. QUAD Phase 3 at York University will deliver a total of 840 Beds by the end of 2026. The Quad, once completed, will have provided approximately 2,300 privately owned and operated student housing beds on campus. We’ll be breaking ground in the coming months.
We have a number of other projects in planning phases located coast to coast, from Halifax to Ottawa to the Lower Mainland in Vancouver.
It does seem like there are more investors becoming curious about getting into student housing. Do you anticipate it becoming a more popular investment in the near future?
It is a compelling asset class, but it does require operating expertise and development expertise. We are now the soon-to-be leaders in the space and I encourage any investor who is interested in investing in Canadian student housing to reach out as we are well-suited to continue to grow and reduce that shortfall of student housing beds across the country.
Read the Q&A originally published here:
Q+A: Forum’s Aly Damji on becoming Canada’s largest student housing provider – Green Street News
