[+] All Eyes on BtR Sales as Assets Come to Market

Arklife’s managing director Scott Ponton was brief, almost to the point of abrupt. The worst-kept secret on Australia’s eastern seaboard is that US-based Hines—the second biggest global build-to-rent player—is deep in due diligence to acquire two of Arklife’s three assets in Queensland. “Let’s address the elephant in the room,” the interviewer asked Ponton as he sat on stage in front of about 300 industry leaders at The Urban Developer ’s day-long Build-to-Rent Summit in Melbourne. “What can you tell us about the deal with Hines?” he asked. “Nothing,” Ponton said drily. “Let’s move forward, then,” the interviewer said. And apart from a smatter of chuckling from the audience, that was that. Except that much of the country’s nascent build-to-rent sector—the financiers, the developers, the operators and the wannabees—is quietly watching and waiting to see what happens with the deal. For as Jeremy Quinn says, the market needs a transaction. ▲ Canberra’s Dickson Village, a mixed-use build-to-rent development, was the first completed asset to sell. “If this goes through then the market will know about where the cap rate is,” Quinn, a principal with the build-to-rent advisory service Franklin St, says. “I think everyone, whether you’re an offshore investor or a local investor, can then start to see there has been a buyer for an asset, and they understand what the asset is, so they can then price it accordingly. “And then people will be able to form cap rates for Melbourne and Sydney, based off a relatively reliable benchmark.” Critically, one of those Arklife assets on the block—the 89-apartment build-to-rent tower on Robertson Lane in the James Street precinct of inner-Brisbane’s Fortitude Valley—is out of the ground and completed. And Arklife’s 265-apartment project on Cordelia Street , South Brisbane, is due for completion in February next year. Meanwhile, about 1370km south, as June ended, an international expressions-of-interest campaign also came to a close for a 332-apartment mixed-used complex at Spotswood, just 6km west of Melbourne. It is the second time the Union Quarter Village, developed by the family-owned Suleman Group, has come to market—it did so in September last year, but this time is different. The precinct, comprising four buildings of three to eight storeys on a 2ha site at 31-69 McLister Street, is completed and operational. The retail element is anchored by Woolworths and its liquor arm, Dan Murphy’s. And many of the apartments are now rented. ▲ Arklife’s Scott Ponton answers questions at the Melbourne build-to-rent summit. But not about a potential deal with Hines. “I think capital is still investing with the thesis that Australian residential is a good place to bet on,” Quinn says. “They are less inclined to take planning and construction risk. But they will take a bet on something that’s operational.” Savills and Colliers, which are jointly brokering the campaign, would not comment on the process, other than to say it had been “well contested”, but Franklin’s Quinn remains buoyed by the prospect. “It’s going to be fascinating to see how that [Union Quarter] transacts, or if it transacts what price it’ll be at,” he said. “This will just be another data point that the market can point to. “And I think that allows capital to better assess the risk and the return opportunity from a transaction. It takes significant risk out of the potential transactions or investment, and that just opens the door.” At this point the number of build-to-rent transactions coming to market could be described as more of a trickle than a wave. In a keynote address to the Melbourne build-to-rent summit, Colliers national director for residential capital markets Robert Papaleo said there were currently 33 finished projects across Australia. Another 36 assets are under construction, 15 of which will be completed this year. Another dozen will be finished by the end of 2026 or beyond. More important, said Papaleo, seven platforms in 2024 will deliver their first asset. “We haven’t seen that scale of new openings ever before,” he told his audience. Total build-to-rent completions in Australia ▲ Source: Colliers But, he cautioned, build-to-rent is just one part of the apartment segment. “And it’s a very small part,” he said. “It’s important, and its importance will grow. But it still is today, a very small part of that overall apartment cycle.” Union Quarter Village, which promises a “secure income stream with an annualised gross rental income of about $18.3 million”, is not the first completed build-to-rent project to come to market, or for that matter, transact. In October last year property investment platform Aware Real Estate paid $157.5 million for the Dickson Village build-to-rent project in Canberra, giving an early glimpse into the market value of the sector’s assets. Achieving practical completion just a month before sale, the six-storey mixed-use development counts a Coles supermarket within ground-floor retail beneath 140 apartments. The sale price reflects a 6 per cent fully leased forecast yield for the apartments and retail centre. Cushman and Wakefield director of development sites Joe Kairouz says headwinds within the sector mean investment hurdles are sharper that they were a couple of years ago. “What’s definitely helped the feasibility make sense for build-to-rent has been an escalation in rents,” he says. ▲ Arklife’s 265-apartment project in Cordelia Street, South Brisbane, is due for completion in February. “But that doesn’t happen across the board. It’s quite location specific. “So, if it’s a location where a build-to-rent developer is confident they’re going to get good rents across the board for their development, then that will help them overcome the escalation in costs to do with construction and financing and things like that.” Kairouz, with Cushman and Wakefield, is brokering a shovel-ready 402-apartment build-to-rent project in inner-city Melbourne. It’s also the second time Samma Property Group has brought the 4509sq m waterfront development at 194 Lorimer Street to market. The Urban Developer understands the group was initially looking to develop the project in a partnership arrangement with a build-to-rent operator. “That mandate has evolved,” says Kairouz, “and we’re at a stage now where we’re looking at a more of a traditional land sale.” The Fender Katsalidis design, which won approval from the Victorian planning minister in January last year, calls for a 31-storey residential tower with apartments and retail across a gross floor area of about 50,000 square metres. Construction costs are estimated at about $152 million. Kairouz said they had spoken to all the country’s prominent build-to-rent developers and operators. ▲ Franklin St. principal Jeremy Quinn: The market needs a transaction. “It’s probably a better scale for build-to-rent than for build-to-sell,” he said. “But the fact that you’ve got an approved envelope and you’ve got a de-risked development opportunity makes it possible for a developer or buyer to seek secondary consent to change internal configurations to suit either build-to-rent or build-to-sell.” Online documents show Samma Property Group paid $22.56 million for the Lorimer Street property in March 2023. The expressions-of-interest campaign closes July 18. Walk just 600m east, directly along the Yarra River, to 111 Lorimer Street. That 4108sq m lot, at the junction of Lorimer, Burgundy and Rogers streets, is also approved for a build-to-rent project. And it’s also for sale via an expressions-of-interest campaign. The difference? Melbourne-based developer Monno wants to effectively pre-sell the project—approved in January last year for 389 apartments across 32 storeys, including an adjoining six-storey building with about 2000sq of office space, as well as ground-floor retail. Franklin’s Quinn sees the 111 Lorimer Street campaign as a further evolution of the asset class. “That would be a completely different structure,” he says. “It's not being pitched as a forward fund; it's being pitched as a forward sale. They will go and fund it and deliver it, but capital could acquire it upon completion. “I think these are the things we need to see for more transactions,” Quinn says. “And I think we can get to that point.” ▲ Samma Property Group has brought its shovel-ready 402-apartment build-to-rent project to market. A second time. You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] All Eyes on BtR Sales as Assets Come to Market

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