University of Leicester's (UoL) student housing project is one of the UK's few PPP-style social infra projects still being developed under the model.
It is one of a number of UK student accommodation PPP projects for which Equitix is lead sponsor. Three more yet to reach financial close are:
- University of York Heslington East Campus Phase 1
- Kingston University’s Residences Project
- University of Bristol Temple Quarter Enterprise Campus
Demand for student housing has remained strong given an ongoing shortage of modern accommodation at UK universities and growing competition to attract students.
Like many of the universities to undertake PPP-style projects, current facilities at UoL's Freemen’s Common Student Village date back to the 1970s and are in a poor state of repair.
The seven-acre site, off Welford Road and Putney Road, comprises the 1970s accommodation, a car park, and the Grade II-listed Freemens Cottages. The sponsors of the DBFOM project have been tasked with replacing all existing facilities, excluding the listed buildings.
Demolition works started in spring (2019), after the project received planning permission in April. Work entails the construction of:
- eight blocks ranging from 4-14 floors, with about 1,200 bedrooms
- new teaching and learning centre with 600-capacity and 250-capacity lecture theatres
- nine-storey car park with space for 550 cars
The sponsors will also be responsible for a sensitive refurbishment and extension of the Freemens Cottages, making the historic buildings the centrepiece of the new development.
The University of Leicester launched a tender for the project at the end of 2016.
Equitix was awarded the contract in September 2017, beating rival bidders Bouygues and Galliford Try. At that time, Equitix had yet to appoint a development partner.
A month later (October 2017) it brought in Kier Group as construction partner. However, it had to be replaced earlier this year (2019) by Engie Regeneration, when it launched a strategic review, restructured its business and sold off non-core assets.
The sponsors will build and maintain the halls of residence through wholly-owned subsidiaries, delivering the accommodation in two phases over three years.
Equitix has taken the lion's share of recent student accommodation projects. In addition to those mentioned earlier, the sponsor was in the last few years also awarded the concessions for the University of Durham, Hull and Essex.
Equitix raised a private placement to finance the University of Leicester's Freemen’s Commons student accommodation project.
An RPI-linked, 45-year bond of £125 million ($152 million) was arranged by Lloyds and sold to three institutional investors.
Investors – taking £41.6 million each – are:
- Aberdeen Standard
- Canada Life
Assured Guaranty wrapped the debt, achieving AA rating from Standard & Poor's Global Ratings.
S&P assigned a BBB rating for the underlying asset during construction, but a lower rating of BBB- for the operations phase.
The rating for the operations reflects S&P's concerns over the university's ability to maintain adequate occupancy levels and predictable levels of operating costs. It notes, though, that UoL's low standing within the UK further education sector and the location of the campus near Leicester city center may put pressure on rent growth over the long-term.
The ratings agency warned that rent increases will not be in line with RPI for the full tenor of the debt.
The total cost of the project – which officially reached financial close on 2 August (2019) – is £165 million, with £40 million equity provided by project sponsors Equitix and Engie.
Equitix is the main sponsor with an 80% stake in the project company, with Engie owning 10% and the UoL holding the remaining 10%.
The sponsors will also undertake a 50-year facilities management contract.
- Operis – financial to the sponsor
- Osborne Clarke – legal to the sponsor
- QMPF – financial to the university
- Pinsent Masons – legal to the university
- Ashurst – lender legal
- MAMG – lender technical
- CBRE – demand adviser
- Marsh – insurance adviser