Q Investment Partners breaks into US co-living market with Chicago project

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/ EdgeProp Singapore
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August 27, 2021 6:00 AM SGT
Young: Co-living is a natural extension that builds on QIP’s experience in investing in student housing. (Picture: QIP)
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SINGAPORE (EDGEPROP) - Singapore-based private equity investment firm Q Investment Partners (QIP) closed an equity funding round last month to fund the development of an American co-living project in the city of Chicago. QIP will use the capital it raised to fund the project, which has a gross development value of US$100 million ($135.4 million). (See also: QIP launches GBP30 mil student accommodation fund)
The funding round was led by Bank Julius Baer, and marks QIP’s first capital partnership with the Swiss private bank. The latest round of funding closed with US$24.5 million raised, and Bank Julius Baer acted as the sole placement agent, contributing US$14.5 million.
The US$24.5 million raised represents the total equity for the project which includes the cost of the land that has been acquired. The total cost of the project is around US$75 million, of which US$50.5 million will be funded by construction debt. According to QIP, the land was bought from a private owner.
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This is the first time QIP is entering the co-living housing market. The Chicago project is a 162,000 sq ft co-living residential development within the city centre that will offer 381 beds. The project is located at 633 S LaSalle.
The co-living development will be managed by The Collective, one of the largest international operators for co-living and serviced living. The building will feature communal spaces, a co-working space, a restaurant and a roof deck.

Tracking the housing journey for young professionals

“QIP’s involvement in developing 633 S LaSalle is a significant step towards growing our co-living and residential housing investment practice, and builds on our strong track-record in purpose-built student accommodation (PBSA),” says Peter Young, CEO of QIP.
He adds that the firm sees the co-living segment as an extension of its PBSA business. QIP has an established portfolio of PBSA assets in the UK and targets university towns such as Edinburgh and cities with high student population catchments such as Egham.
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“We like co-living as a market and we see it as a sort of PBSA 2.0. From our perspective, this segment is a natural product that is the next step in the real estate journey for young people and graduates,” says Young.
new co-living development in Chicago - EDGEPROP SINGAPORE
The new co-living development in Chicago has a gross development value of US$100 million. (Picture: QIP)
He says that QIP has experience in providing and investing in student accommodation that makes the firm well-placed to understand that this group of young buyers are looking for good accommodation that is safe and affordable.
“In general, young professionals in some cities don’t have access to particularly great housing products that are suitable to their needs. We see this occurring in the developed country markets such as the UK and the US,” says Young.
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He adds that the experience of living through a pandemic has highlighted the importance of balancing work, play and rest, and how residential developments can be further developed to help balance these lifestyle factors.
Housing affordability has also become a more important factor in developed cities over the past few years, and has helped drive the interest in sectors such as PBSA and co-living, says Young. “For many of the markets where we think co-living can flourish, the housing market tends to be very difficult for young professionals to break into.”

Why Chicago is picked

Despite its experience and established presence in the UK market, Young says that the firm chose Chicago to launch its maiden co-living development because the city is the type of location where a product like co-living can flourish.
“Chicago is one of the most dynamic cities in the US with one of the most diverse economies compared to other US cities. It also has a strong population that is underserved by the local residential market, especially in affordable housing products for young professionals,” says Young.
QIP is entering a relatively established co-living market in Chicago. The firm says that there are three other co-living operators already established in the city that are well-let with typical occupancy rates of about 97%.
A typical residential development that is originally designed for co-living, with individual studios and a variety of communal spaces, will generally have a rent that is lower than neighbouring studios or traditional apartments.
“We calculate that for a co-living customer in a two-year lease, their individual net housing cost is about 30% less compared to someone else in a rental studio,” says Young. Based on this, he says that a landlord with a high-quality co-living product could see a net operating income yield of about 15%.
He adds that given the purpose-built design of a high-quality co-living product, the firm’s future co-living acquisitions and developments will focus on building new projects rather than converting existing buildings.

Growth potential for investors

Bank Julius Baer’s role as a leading participant sends a strong signal to private investors and institutional investors to capitalise on the growth potential of co-living, says QIP.
According to Giuseppe De Filippo, head of private investments markets at Bank Julius Baer, its participation reflects a firm belief in US co-living as a resilient asset class and the role private equity plays in portfolio diversification.
“Bank Julius Baer’s participation in this round demonstrates the increased appetite from private banks for opportunities in the institutional-grade real estate sector, and specifically in the co-living space,” says Young.
“Private banking clients and to a large extent, institutional investors, are generally always on the look-out for new macro trends and how they can be applied to their investments,” he says.
“As a business, it has been helpful that we have a very strong track record in monetising the student housing sector. And the opportunities are clearly present to follow these young professionals through our co-living product, and then multifamily and active senior living,” says Young.

Future growth plans

In the UK, QIP has also sought partners to continue expanding its portfolio of PBSA assets there. In July this year, the firm entered into a joint venture with UK construction firm HG Developments to secure a GBP18 million ($33.5 million) construction debt from UK retail bank Secure Trust Bank to support two new PBSA projects.
The debt raised will go towards a 76-bed development at 65 London Road in Edinburgh and a 107-bed development in Egham that will be a repurposed retail space. Both projects are expected to be completed by 3Q2022 and will coincide with the start of the 2022/2023 academic year.
artist’s impression of the new PBSA that QIP and HG Developments are building in Edinburgh - EDGEPROP SINGAPORE
An artist’s impression of the new PBSA that QIP and HG Developments are building in Edinburgh. (Picture: QIP)
The firm saw leasing demand for its PBSA properties jump 70%-80% in the week following the release of the UK ‘A’ Level results on Aug 10 this year. Its Straits Village property at Nottingham has an occupancy of 97% as of mid-August; its property in Edinburgh called Straits Meadow is fully occupied; and it has a development in Sheffield called Straits Manor that is 84% occupied.
Looking ahead, QIP says that it is focused on investing in developed country markets. These include the UK and US where it is established, as well as other markets such as Japan.
“Our strongest pillar is our UK student housing. We have a portfolio of assets that are stabilised, and we hope will continue to invest and grow that portfolio over the next five to seven years,” says Young.
He also sees opportunities for the firm to explore senior living housing assets, especially in countries with ageing demographics in Southeast Asia and the wider Asia Pacific.

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