The dramatic onset of the COVID19 pandemic saw alternative investment firm Kayne Anderson flip from a net seller of student housing assets to a vigorous buyer, while doubling down on its medical office vertical.
Remote learning and widespread US university closures completely recalibrated student housing prices and offered the Florida-based firm opportunities to snap up premium new developments.
“There are big bifurcations between the haves and the have nots when it comes to student housing,” Al Rabil (pictured), co-founder and chief executive officer of Kayne Anderson, told Investment Magazine’s Real Estate Investment conference in late February.
“Off campus student housing near the premier, brand name universities, where demand outstrips supply and with high barriers to entry are going to do very, very well, while second and third tier universities will really suffer,” Rabil said.
The Florida-based investment firm, which manages almost $US10 billion of assets, focuses specifically on three niche property plays: medical offices, seniors housing and student housing which all benefit from macro demographic trends.
“We had been a net seller in student housing since 2013 until Covid19 hit,” he said. “But now we’ve been a net buyer since last March, committing over $1 billion to new developments.”
Rabil pointed to two properties the firm brought online in August – one in Rutgers New Jersey and another in Florida – both with significant enrollment supply constraints at the local universities.
Despite both universities undertaking remote learning for the better part of 2020, the New Jersey and Florida properties have come online 100 per cent and 96 per cent leased and occupied respectively.
“Rutgers was refinanced a month ago, and the two properties are agreed upon for sale which will probably happen in the next two months,” Rabil said.
“Student housing at those kinds of universities is not suffering in the least.”
That said, the broader student housing market is undergoing a seismic shift, with Rabil predicting that a large proportion of America’s 5500 universities will be wiped out.
Rabil, who founded the business in 2007, said the remote learning threat that has decimated second and third tier universities – and those in Australia – is unlikely to penetrate top tier US universities and their surrounding real estate.
Aside from student housing, Rabil said the medical office space is poised for growth as hospital systems look for investors with operational experience to help run their buildings efficiently.
“There’s virtually no capital allocation to this asset class, but there is a strong demand and a dearth of highly qualified operators,” Rabil said.
The changes in American healthcare over the last ten years has seen 8 per cent of medical practitioners employed by hospitals balloon out to 72 per cent today.
“Many hospitals over the years have had to exit their real estate positions to fund their growing need to acquire private practices,” Rabil said.
“They never had the epiphany to say, we own a lot of real estate, so we’re a real estate company as well as a hospital, so they haven’t managed their assets from an occupancy, cost, building contract standpoint.”
As a firm, Kayne Anderson has doubled down on that operational expertise making it a unique investing partner for medical offices, of which it now controls 2.3 million square meters across the country.
“This is not a commoditised marketplace like multi-family for example,” Rabil said. “There are unique challenges to running these assets, and because we are not just capital allocators, we are a controller of these platforms.”
Senior housing also requires a critical operational understanding, but enjoys a profound macro demographic trend.
Rabil points out that by 2050 there will be more people over 60-years-old than under 18-years-old.
“That means we’re living in a 1-2 per cent real GDP growth economy, which means it’s harder to find growth,” he said.
“Usually I would say, find the growth and let it run you over, but since it’s hard to find, we like to look at these vertices.”
Kayne Andersson has found all three of their niche trends – senior housing, student housing, medical offices – resilient enough to withstand the ructions of a recession coupled with an unexpected pandemic.
“But execution risk remains the biggest risk and there are few highly qualified operators in our sectors,” Rabil said.
