Alignvest’s plan to roll up Canada’s off-campus student housing sector

While institutions pour billions of dollars into student-housing assets globally, a local private equity fund is looking to consolidate Canada’s fast-evolving sector.

Last July, Alignvest Student Housing, an affiliate of Alignvest Management Corp, launched a fund to acquire purpose-built student accommodation.

The evergreen vehicle has so far secured $125 million from family offices, institutions and wealthy investors, Managing Partner Jonathan Turnbull told PE Hub Canada.

Initial raised capital has backed investments in three off-campus student residences in university hubs in Ottawa and Waterloo. They include The Annex, a 503-bed PBSA near the University of Ottawa, acquired in January.

ASH is now raising resources for four more deals located in Ontario cities.

The strategy is to roll up Canada’s fragmented PBSA sector. ASH’s current focus is on Ontario and its predominant share of post-secondary enrollment, but activity will eventually include other regions as well.

ASH aims to become the nation’s biggest owner of off-campus student housing.

ASH initially gave its fund a five-year investment target of $300 million to $400 million, sufficient to establish a portfolio of roughly $1 billion. As of March, the vehicle is already approaching the target’s half-way mark, Turnbull said.

This is due, he said, to an unexpectedly large supply of PBSA opportunities “coming out the woodwork,” primarily from local developers and investors.

Jonathan Turnbull, managing partner, Alignvest Student Housing. Photo courtesy of the firm.

New asset class

Purpose-built student accommodation recently emerged as a new asset class globally, attracting a range of investors.

Among them are Canadian pension funds, including Canada Pension Plan Investment Board, PSP Investments and British Columbia Investment Management Corp.

They and other institutions are investing huge sums in PBSA assets, mostly in mature sectors in the U.S. and Western Europe, according to real estate services firm Savills.

For example, a CPPIB-backed platform, Scion Student Communities, acquired 24 U.S. properties last year for US$1.1 billion. The deal brought platform deployments since 2016 to more than US$4 billion.

Brookfield Asset Management is also active in the space, only last month acquiring French PBSA Ecla Paris.

This trend is the result of strong growth in higher education enrollment and mobility rates, which are fueling demand for student living quarters with modern amenities. Even in developed countries, demand for facilities often meets short supply.

Canada’s evolving sector

Compared with the U.S., Canada’s PBSA sector is underdeveloped. Off-campus student residences account for only 3 percent of full-time enrollees, compared with 10 percent south of the border, according to various data sources compiled by ASH.

But the domestic sector is being shaped by the same growth drivers on display worldwide. Post-secondary enrollment rose sharply over the past two decades and Canada’s share of international students is especially high.

Turnbull, who puts the value of Canadian PBSA assets at $4 billion, says development of off-campus housing stock has expanded in recent years. While activity lags student population growth, it is providing deal flow for ASH and other investors, he said.

Turnbull joined Alignvest in 2017. Before then, he was a managing director of Dundee Private Equity and CEO of Dundee Acquisition, a special purpose acquisition corporation and early mover in Canada’s PBSA space.

He led Dundee SPAC acquisitions worth more than $400 million. Much of this was linked with a proposed merger in 2016 with CHC Student Housing Corp, terminated months later because of a lack of financing.

The experience convinced Turnbull of the viability of PBSA investing through a strategy that is less a “big bang push for scale” and more a piece-by-piece focus on quality, the approach he has chosen for ASH.

Turnbull shares oversight of ASH with Managing Partner Sanjil Shah, Alignvest’s CFO.

Alignvest, a Toronto alternative investment firm led by Managing Partners Reza Satchu and Timothy Hodgson, is an investor in ASH’s fund.