Student Accomodation as an asset class

Given that stock markets have been an incredibly volatile and relative to return, high risk investment over the past 5 years, and bond yeilds have been the lowest anyof us have seen in our working lives, investors who are looking for stability and better than inflation returns have looked to alternative asset classes.

Boutique fund managers have emerged offering alternative investment strategies which provide low volatility returns with higher than average performance figures.

One such class of assets is that of student accomodation.  These funds, based out of the UK, purchase, or invest in, student accomodation.  That could be halls of residence, or houses and apartment blocks which can be let to scholars.  These funds base their returns in the main on rental income yields, although some do pass on the capital gains and values of the properties they have purchased.  Performance figures are in the range of 6 to 9% in GBP terms, but they often have hedged versions available in USD and Euro.

So what's the downside?  The main risk factor with these funds is their ability to become liquid, this entails the sale of properties which as we all know is a slow labourious process, and an emergency sale will always yield a lower price than is usually desired.  These situations could arise when there is a run on capital, such as during the credit crisis.  In these situations it is not uncommon for these funds to suspend redemptions.  This is to protect the other shareholders from a fire sale.

On balance these alternative funds can offer diversity and returns in a portfolio. Because of their boutique nature it is not advisable to invest more than around 10 to 15% into any one fund.

In summary for investors looking for income or stable returns these funds offer a great opportunity, but as always make sure you take advice before jumping in.