Pension funds in rush to fund boomer build-to-rent projects
LONDON: Pension and super funds are lining up to fund an avalanche of new boomer oriented build-to-rent schemes.
AustralianSuper has extended its reach into housing by funding a $920 million development of 1092 build-to-rent-to-own units in Melbourne, through the Assemble Futures platform in which it holds a 25 per cent stake.
The country’s largest super fund is putting in more than $364 million, or 90 per cent of the required $405.3 million in equity, to acquire and develop the three sites across the inner-ring suburbs of Brunswick, Coburg and Footscray.
Make Ventures, the investment company headed by Assemble managing director Kris Daff, will invest the remaining 10 per cent and an undisclosed commercial bank debt will fund the rest of the budget.
Under the build-to-rent-to-own model pioneered by Assemble – which required changes to the state’s Sale of Land Act – residents can purchase their property after renting it for five years, and at a price agreed at the time of completion of the building.
It will give the super fund a revenue stream from the rental payments paid by residents as well as a lump-sum payment when they purchase the units. Expected financial returns from the projects were not available.
“AustralianSuper is helping to provide more Australians with an important pathway to home ownership while delivering on our purpose to help members to achieve their best financial position in retirement,” AustralianSuper head of property Bevan Towning said.
The three sites are at 370 Victoria Street in Brunswick, 519-547 Sydney Road in Coburg and 11-19 Whitehall Street, Footscray.
The current downturn has exposed the weakness of Australia’s highly cyclical, small investor-dependent model of housing development. Soaring construction and financing costs make traditional for-sale developers largely unable to market and sell enough units to get a project off the ground, even at a time when record-low rental market vacancies are pushing up rents.
“If you’re a mum-and-dad investor, and you know your home [which you borrow against to invest] is going down 15-20 per cent in value but for an off-the-plan development you have to pay 10-15 per cent more – I don’t know how you make that sales pitch,” Mr Daff said. That outlook worsened with the publication of official figures on Friday showing loans for the construction of new homes sank in January to their lowest since the global financial crisis hit in 2008.
While AustralianSuper’s commitment to the Assemble platform goes back several years, the lack of new housing baked in for the next two to three years is likely to boost the advance of institutional money into residential accommodation in a way that is new for this country, but well-established overseas. “We’ll see similar trends emerge in markets like the US and UK because of the structural failure in the housing market,” Mr Daff said. “When the revenue line is rent, that’s a lot easier a development proposal to pitch.”
The $274 billion AustralianSuper fund made its first commitment to build-to-rent-to-own in 2020 when it invested in Assemble’s 199-unit project at 15 Thompson Street in inner-northwestern Melbourne’s Kensington.
It subsequently invested in Assemble’s 173-unit project at 4 Ballarat Street in Brunswick. Work on both projects has kicked off, and they are due to be completed next year. By the time of the three new projects’ scheduled completion in 2027, the super fund will have financed the creation of 1464 homes.
Assemble has already completed its first build-to-rent-to-own project, a 73-apartment development in Melbourne’s Kensington.
Institutional funding has still not reached a tipping point at which it was playing a major role in housing development, but that would happen over the next decade, Mr Daff said.
“Clearly the signals are that it’s got the potential to emerge but if you look at what BTR groups are doing as a proportion of the total housing requirement or the total housing being delivered, it’s still really a drop in the ocean,” he said. “But there’s greater potential than there has ever been for it to really emerge at significant scale over the next five to 10 years.”
