Student accommodation in a big city is a way to deliver
steady inflation-matching investment returns, says the manager of a closed-end vehicle
about to make its debut on the stock market. The image of student residences
has come a long way from the good-natured chaos of the US classic “Animal House”
film.

Tom Ward, who runs theGCP Student Living vehicle, enthused
to this publication about the merits of its London asset, the brand new private student accommodation
and teaching building operated under the Scape Student Living brand. The
building, already 97 per cent occupied, is opposite Queen Mary University of
London, in London’s
Mile End area in the eastern part of the city.

There is a target fund-raise of £50 million ($77 million)
for GCP Student Living plc. (GCP stand for Gravis Capital Partners.)

There are a number of reasons why this is an interesting
asset class, Ward told this publication in a recent interview. It has been the
best-performing property asset class in the UK and US over the course of 2012
when compared to broad market benchmarks such as those provided by Investment
Property Databank.

Student accommodation is, to an extent, counter-cyclical,
Ward said. “It is a very low-volatility asset class in good and bad times,” he
said, pointing out that there is demand for such places both when an economy
was strong and when in a recession.

“It is a physical asset class as well and one that people
can relate to. We have, many of us, been students at one point in time,” Ward
said.

What catches the eye from a wealth protection and growth
point of view is that GCP Student Living is a real estate investment trust, or
REIT; this vehicle, which will be placed on the stock market in an IPO in early
May (the offer closes on 10 May), is targeting returns of 5.5 per cent a year
in terms of income yield. Total returns, including capital growth, are 8 to 10
per cent a year. (REITS are obliged by law to distribute at least 90 per cent
of cash returns as dividends.)

The characteristics of assets lend themselves to long-term
investors such as family offices and high net worth investors seeking
inflation-beating, steady gains, he said.

GCP already have experience in this field. The firm focuses
on income-generating defensive sectors central to the UK's social and
community infrastructure, including GCP Infrastructure Investments, which is a
London-listed investment company with around a £300 million market capitalisation,
as at 28 February 2013. GCP oversees around £700 million of client money in
total.

Listed real estate

Even discounting the enthusiasm that any manager of such a
REIT can be expected to exhibit ahead of an IPO, Ward has reason to be in
chipper mood. Recent figures from the European Public Real Estate Association
shows that demand for real estate securities has surged since the global
financial crisis. Assets under management of real estate securities funds grew by
68 per cent to $250 billion from 2007 to 2012, according to research by
consultancy company Consilia Capital and Property Funds Research for EPRA.

The research estimates that the number of real estate
securities funds increased by 39 per cent to 677 in the same period. The most
recent figures show that total assets under management for exchange-traded funds (ETFs) pegged to FTSE EPRA/NAREIT real estate indices jumped by 85 per
cent to $8.7 billion in the 12 months through to February this year.

“Above-average dividend yields and secure long-term cash-flows
generated by listed real estate companies have an immediate appeal to
yield-hungry investors. The liquidity, efficient pricing and transparency
offered by the listed property sector mean it is also attracting a broader
range of investors from defined contribution pension plans to long/short hedge
funds,” Philip Charls, chief executive of EPRA, said in a recent statement.