Refinancing Deal Points Way For Fresh And Alternative Lenders

Refinancing of more than €58M of debt for student housing specialist Global Student Accommodation by Wells Fargo is “good news for the whole sector,” according to GSA Global Head of Capital Markets John Jacobs.

Despite tight lending criteria and concerns over more expensive debt, Jacobs said he believes that strong fundamentals in high-demand sectors such as student housing can attract a fresh raft of overseas investment, providing a much-needed additional capital resource in a market dominated by Ireland’s two main banks.

Wells Fargo provided the loan for GSA’s joint venture with long-term partner and investment manager Harrison Street in what is the company’s first transaction with Wells Fargo in Europe, building upon its existing relationship in the U.S.

The refinance is for Yugo Highfield Park and Yugo Dominick Place, purpose-built student accommodation blocks in Dublin. The former opened in 2020 and provides campus-style accommodation with townhouses, cluster apartments and twin rooms, plus amenities like a basketball court and multipurpose common areas. The latter opened in 2019, providing city centre living with facilities including a gym, game room, roof terrace and cinema room.

“We've got better terms with the new bank, and for us — and the wider sector — that's a very positive news story,” Jacobs told Bisnow. “In this environment, it's not that easy to get better terms, but Wells Fargo coming into Ireland, into Dublin funding, is only good for everybody. And it's particularly good for other operators and owners of student housing as well.”

He said the loan proves international lenders are willing to consider funding in the Irish market and that a wider pool of investors is vital, with Ireland’s lending picture domestically dominated by Allied Irish Banks and Bank of Ireland. 

“We work with both Irish banks, but for large businesses like ourselves with multiple buildings, it can sometimes be an issue of hitting thresholds rather than the banks having no lending appetite,” Jacobs said. “They have to manage their risk to a single entity, but with just two pillar banks, that’s a problem we don’t have anywhere else in the world.”

That is vastly different from the U.S. and UK markets, where developers have multiple banking options from which to borrow.

“You can have your pick, and you'll get the margin and it will be pretty competitive, whereas in Ireland, the other alternative is private equity, which typically comes at a different price,” he said. “Hence, we were delighted when Wells Fargo came in.”

Jacobs said insurance companies and international banks were also interested in providing the financing.

“It's a good sign, really, a flight to quality,” he said. “The fundamentals are there. The demand is there, outstripping supply. The quality of the product is there.”

Jacobs has been working in the student sector since 2015, during the early days of PBSA in Dublin, when private developers were encouraged to develop new accommodation because of a chronic shortage of beds.

However, he said he believes the situation is potentially worse now in terms of the supply-demand imbalance.

“It has slowed down that much, unfortunately, and once again, you see the government having to interject into the market themselves,” Jacobs said. “They've already put €62M in to assist with on-campus building. They're now looking at standardised designs to try and lower the cost for themselves. It is a bit of a cycle. Here we are, eight years later, massive investments, things have slowed down again. From the point of view of an owner and investor with 3,500 beds in the market, our demand is just phenomenal.” 

More than 60,000 students are poised to enter the market after the Leaving Cert results came out, but GSA’s accommodation for the coming university year is already 100% full.

“So for the Leaving Cert students who have yet to make a decision on where they're going to live because of waiting for the results, I can honestly say I don't think there's a private bed available in Dublin,” he said.

Jacobs said GSA would like to develop more student schemes, but the company is waiting to assess how the market evolves in terms of construction costs.

“It really just is too high at the moment,” he said. “The government are obviously not going to be able to solve this by themselves. They are going to once again have to look to the private sector for help. Maybe standardised design is a good idea, but they can't just say standardised designs for anything the government builds and the rest of you have got to stick to the other [more expensive] designs.” 

Planning rules dictate the square footage of amenities, and while Jacobs said this means standards are very high in Ireland, that also comes at a cost.

“If we just want to focus back on the student and affordability, then we're going to need some help in terms of planning, in particular, and challenge them to lower the cost of construction, because without doing that, it's hard to see how supply is going to increase significantly,” he said.