A private school operator could give Metro Vancouver real estate investors a lesson in vertical integration, cash flow and profitable exit strategies.
Vancouver-based CIBT Education Group Inc. (TSX:MBA), the owner of Sprott Shaw College, founded 27 years ago, is currently developing the latest in a series of mixed-use properties that harness demand from international students and for residential real estate to create what company CEO and president Toby Chu calls “a win-win for everyone.”
Chu said he came up with the concept of blending real estate and education on a flight from Toronto when he hit upon the revelation that airlines were making more money on cargo than on passengers.
“I took the same concept,” Chu said. “International students are after education first but housing is the Number 2 priority.”
Since that “eureka” moment five years ago, CIBT has transformed itself into a mega real estate developer that has seen returns on investment of more than 300%.
CIBT’s template is to purchase a site, partner with a developer to build a school campus and residential towers, lease out other space to schools and related businesses and rent hundreds of suites as student housing.
“We build, we fill them and then we sell the property,” said Chu, who now has nine “global education centres” cross Metro Vancouver, including mega sites under development in central Surrey, Vancouver’s Oakridge area and Richmond.
While CIBT posted educational revenue north of $49 million in each of the last two years, Chu said that is not where the real money is raised.
“If you look at the net income contribution, real estate is much more significant than education,” Chu said. Five years ago, rental revenues alone were $500,000, compared with $20.6 million in 2019.
“Every year we exit a project and turn it into cash,” he said, with CIBT then contracted as property managers for between five to 21 years.
An example is one of their first projects, at Howe and Drake Streets in downtown Vancouver. Bought and refurbished in 2015 for $36 million, the property was sold last year for a $55.5 million, with CIBT retaining a management contract.
In 2014, it developed a campus-housing complex, GEC Pearson, in southwest Vancouver. The return on invested capital in four years was 317% and it generates $4.5 million annually in rental income.
This January, CIBT purchased three land parcels at Oakridge for $30.3 million and is developing a $103 million global education centre that will include 14-storey and 27-storey towers with schools, office space and 466 beds of student housing. Slated to complete in 2023, Chu projects the future exit value at $174 million.
In Surrey, close to a Simon Fraser University campus and, like all its projects, near a SkyTrain station, CIBT has scaled back a planned 55-storey tower into a more efficient 38-storey building. It will house Sprott Shaw and other college or university classrooms and 180 student rental units. A further 180 mini-condos will cover 10 floors and are expected to sell for around $750 per square foot. The project is being developed with WestStone Group.
The student housing, mostly studio units planned for two residents, could be considered affordable at around $800 per month, he said.
Chu, born in Hong Kong and a Vancouver Community College graduate who has lived in Vancouver for 52 years, expects final civic approvals for CIBT’s GEC Education Mega Centre in Surrey by this fall with construction underway shortly after.