Fiduciary Advisory – Student Housing
Challenge – Lineage Asset Advisors was hired by the successor trustee of a 5-building student housing portfolio at
USC to advise the trustee on strategies with the real estate portfolio. The trust had owned and assembled this real estate portfolio of 56 units and 81 beds over decades. The patriarch, who acquired the portfolio, had passed away years ago and the successor trustee was managing and making decisions with the portfolio on behalf of the trust. The buildings were all of older vintage and were built between 1903 and 1924. The trustee and property manager had maintained the properties well even in light of their age but the impacts of COVID on student housing vacancy, deferred maintenance, and a changing economic landscape were looming for the trustee. COVID specifically had impacted the vacancy rate for student housing at USC and deteriorated the cash flow for the trust to the point where they went negative on cash flow for the first time since they owned the assets.
Solution – The trust hired Lineage Asset Advisors to assist with a comprehensive Portfolio Assessment to help them analyze the different options with the real estate which included hold strategies to maximize cash flow such as performing interior and exterior renovation and increasing rents (i.e. heavy value-add strategies) and comparing against the alternative strategies of partnering with an operator or even disposition. Lineage Asset Advisors put together the comprehensive Portfolio Assessment for the trustee outlining the different financial return scenarios and presented the assessment to the trustee. The Portfolio Assessment proved to be the strategic catalyst in helping the trustee determine the best direction for the trust in monetizing the real estate.
Outcome – After much deliberation and analysis, the trust decided that the best result given all of the factors with the real estate and the economy was to identify the right student housing operator to dispose of the asset and to redeploy the equity into more stable and liquid investments. These investments would kick off more predictable returns for the trust as compared to the volatile cash flow with the real estate. Additionally, the trust could foresee further volatility in cash flow because of upcoming capital expenditures with the properties. The trust hired Lineage Asset Advisors to run a streamlined disposition process to identify and negotiate with the most qualified student housing operators at USC. In light the economic changes occurring after COVID Lineage needed to move quickly to target, negotiate, and close the project on behalf of the trust. Ultimately, the result of the process was the achievement of maximum value for the trust and surety of close with the right student housing operator. The result was a nearly 20% premium on value achievement over and above the owner’s expectations which further allowed the trustee to justify the disposition.