Affordable BtR the Next Frontier for Institutional Capital

Affordable build-to-rent is gathering steam in Australia as global investors eye our bereft rental market favourably. But without strong public-private partnerships the nascent market will flounder, one global investor is warning. The rise of build-to-rent in Australia has been firmly targeting high-end, inner-city development with institutional capital flowing into the burgeoning asset class. But as it finds its feet on Australian shores, new entrants are making a play for the affordable end of the market. AXA IM Alts has made its first move, investing in Deicorp’s three-building Westmead project, adding to its $4-billion global portfolio. AXA IM Alts head of Australia Antoine Mesnage says forging a strong partnership model with St George Community Housing will enable them to scale its affordable build-to-rent strategy down under. Mesnage says AXA IM Alts launched its move into Australia in 2022 with the acquisition of the Westmead project. “With the acquisition ... we set up a partnership with St George Community Housing to scale our investments in affordable housing in Australia,” Mesnage says. “This was prior to the announcement of the Housing Australia Future Fund and pre-MIT withholding tax changes. We are leveraging our expertise—globally we manage more than 13,000 affordable housing units. “The Westmead project ... is expected to complete in 2025 and will enable essential workers to live in good quality, institutionally managed accommodation closer to their place of employment.” ▲ AXA IM Alts head of Australia Antoine Mesnage with Clean Energy Finance Corporation chief executive Ian Learmonth outside the Westmead project. The site of the 397-apartment, three-building project at 3 Farmhouse Road is next to Western Sydney University’s Westmead campus. An innovation centre is planned in wider development associated with the university. Mesnage says AXA IM Alts has taken the view that the Australian market is mature and that the pressure in demand provides opportunity for global investment in affordable housing, which currently makes up less than 5 per cent of rental properties nationally. The investor’s mandate is to provide a minimum of 50 per cent affordable housing, which is means tested. The remainder will be targeted at the mid-market. The strategy will focus on well-connected transport hubs and employment precincts. Mesnage says AXA expects much of its tenant base to be key workers. He says that the pressure for more housing is a global phenomenon, but the Australian market “historically has not been invested in by institutional capital”. “There’s a lack of regulated housing in the housing supply, and if you look at the stock it’s very low compared to other big economies,” Mesnage says. “It’s less than 5 per cent of social housing versus 20 per cent in some other big geographies. “We believe that, due to the location and demand, a large portion of our communities will be key workers. It’s exactly the kind of tenant who is looking for affordable housing in inner-city areas. “Our investment mandate globally in affordable housing has been proven to deliver strong long term returns. It’s a long-term investment.” But it’s not only about financial returns. “We’re also delivering non-financial impact. Tenants will have access to renewable energy price agreements and also security of tenure,” Mesnage says. ▲ The site of the Westmead development, which is due to complete this year, earlier in the construction process. AXA IM Alts’ affordable housing strategy in Australia is targeting 3000 homes in key employment hubs in Sydney, Melbourne and Brisbane. A $100-million investment this year by CEFC has helped supercharge that objective to deliver housing with social and environmental impact. The Westmead project will be fully electric and wholly powered by renewable energy, while future projects will focus on achieving minimum 5-star Green Star Buildings certification and an average 7.5-star NatHERS home energy rating. The CEFC investment will support access to energy efficient affordable housing, something often out of reach for those with less financial means according to CEFC head of property Michael Di Russo. “Buildings use 50 per cent of Australia’s energy,” Di Russo says. “Residential is a little bit further behind … it’s a bit of a lagging sector [in terms of sustainability]. That creates a really important focus area to accelerate what’s being done in residential … and even more importantly because of the affordability element in the market at the moment. “The Westmead project is demonstrating that sustainability can be delivered at all ends of the market, not just the high end.” CEFC has also made a cornerstone investment in Mirvac’s build-to-rent portfolio. Di Russo says build-to-rent is a key asset class that is attracting institutional grade capital investment. “Sustainability is an offering, and the more they can offer to their tenants, the better the value proposition for build-to-rent,” Di Russo says. “The role banks are playing (with green loans) ... they’ve got a big role to play in driving sustainability in residential markets.” Di Russo says they are seeing “green shoots” in the market with capital starting to move and signs of stabilisation. “Existing buildings are a real opportunity, that brown to green strategy is starting to gain more traction.” Public-private partnerships a scaleable model Partnerships are central to the success of AXA IM Alts strategy in Australia, Mesnage says. “Partnering with delivery partners and operators who have the expertise will allow us to scale in Australia. “We are focusing on Melbourne, Sydney and Brisbane and we want to replicate the Westmead model in these cities. We want to partner with developers who are interested in de-risking their projects.” Mesnage says they are open to buying existing assets “but they don’t really exist” in the Australian market. “It’s the biggest investment market in Australia and if you look at performance it fits very well. Most of the capital is still allocated to retail, office and industrial—but we’re convinced that’s going to change,” he says. But, he says, institutional capital cannot be expected to invest in affordable housing without strong public-private partnerships. “Australia is a great geography and we have strong conviction that affordable build-to-rent will provide a strong risk-adjusted return on investment.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

Affordable BtR the Next Frontier for Institutional Capital

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