[+] Build-to-Rent Disruptor Plots Backyard Blitz

A Victorian developer is challenging the vertical villages of Melbourne as it looks to the horizontal build-to-rent model in a backyard blitz of Victoria. Resimax chief executive Ozzie Kheir wants to deliver 500 build-to-rent detached houses in the next two years to cater to families looking for suburban lifestyle. And it’s a vision Kheir is committed to. “You go to a local convenience store and see nearly 20 bikes there at four o’clock with all the kids after school riding their bikes to grab an ice cream,” Kheir says. Kheir wants to create affordable rentals and stability for families so they can be part of a community, which is key to his build-to-rent strategy. And it is that strategy that has led Resimax to move away from the push for vertical living and apartment towers in the city. “It’s not an ideal product for a family of three that doesn’t want to live in a city where we have many purchasers and many tenants that would never get an apartment no matter what you do,” Kheir says. Instead Kheir has opted for detached housing as part of the build-to-rent model, finding land and building houses on it that Resimax can then rent out to families predominantly. His goal is to have 500 houses rented under a build-to-rent model to tenants across three major land estates in Melbourne suburbs, there’s just one thing holding him back. Land supply. Resimax, which also has built-to-sell offerings, has already rented out 200 such houses. It’s a pushback against the common assumption that to resolve Australia’s housing crisis, particularly in Victoria, developers need to build up, not horizontally . In other words: apartments are in, detached houses are out. And so is the dream of living in a house with a backyard of your own and enough bedrooms for the kids. But Kheir’s plans disrupt that notion. ▲ Resimax’s housing estate at Mernda where it will offer build-to-rent detached houses. The housing dream … but for renters What is interesting is that that dream of a house with a backyard has previously been one about home ownership. And what Kheir has made happen for more than 200 tenants already is an expansion of that dream for renters. It has also blown a hole in the theory that build-to-rent offerings must only be apartments. Kheir says that although there are many that would be content to live in the city, that is not the demographic that he identified a couple of years ago. “From our experience, our tenants will never live in an apartment,” Kheir says. “That would be very depressing for them to not have the opportunity to live in a four-bedroom house with a yard, probably a little bit out of the city, out of the congestion and close to the schools. “I think our tenants are probably aspirational buyers—if they could buy they would but they want to rent, send their kids to school and then maybe later buy in the same area.” Kheir also charges lower rents for three and four-bedroom houses than others charge for one to two-bedroom apartments in the city . “Even if they could afford to live in a studio apartment, they just wouldn’t,” Kheir says. “That’s not what they want, that’s not where they want to raise their kids.” Initially, Kheir attempted to try to make the build-to-rent model work with low-rise housing stock but it didn’t quite work. “We found that it worked much better on the detached housing stock and we just took it from there and it just evolved,” Kheir says. ▲ Resimax also has another housing estate at Wallan where it will offer build-to-rent detached houses. Obstacles along the way It was a hard sell at first, trying to explain not just the build-to-rent model but how it would work with detached housing. “We started having conversations with different banks and they were very negative about it,” Kheir says. “Most banks were negative about it. “Most people just didn’t understand it.” But as Kheir points out, build-to-rent has only recently been understood as a concept in Australia in the last 18 months or so with the conversation mostly centered around apartments. Elsewhere in the world, detached housing has been a part of a build-to-rent model for far longer. “It’s the majority of build-to-rent housing in the United States,” Kheir points out. It took some time to get one of the major banks, ANZ, to understand Kheir’s vision and to come on board as the main lender for Resimax. Nomura has also come on board as the equity partner. All that remains now is the one obstacle that Resimax has to battle against most fervently: land supply . Land supply Kheir is very frank. “There’s none of it,” he says. “That’s what’s driving all the prices. You have very little land available to develop. “And there’s a lack of approval and approved land development all across Melbourne. “It’s forcing prices to continue to grow.” That leaves Kheir in a tough spot as he tries to reach his goal of 500 houses rented out within 18 to 24 months. Resimax also has its own builders and construction workers so while construction costs are a slight concern they aren’t as big a factor as land supply is. The developer starts 20 to 40 houses each month and delivers at least 10 houses each month to be ready for market for renting to potential tenants. Kheir says he sees at least 15 to 20 applicants per house with many coming back a third or fourth time but Resimax cannot accommodate all those who want to rent them. Finding more land could speed up the process. But the land they need has to be close to schools, services and transport networks so that all that is provided when Resimax starts building the houses. “The government hasn’t approved any land for a long time,” Kheir says. “So by not approving land, we can’t deliver houses even if we want to. “We’re available and able to but we can’t because there’s not enough land supply.” ▲ Melbourne’s first build-to-rent development was a 59-level tower called Home at 256-260 City Road, Southbank. The future It’s a big concern for Kheir. “If we think we have got a housing crisis now, I’d be very wary about what’s going to happen in the next two to four years with the current supply of stock,” he says. “It’s an issue that I think will need to be addressed. “So that we’ll have housing for the future.” In the meantime, Resimax plans to reassess its goals after renting out the 500th house and then see what could be in store. Kheir has not ruled out applying the concept in places beyond just Victoria where Eynesbury, Mernda and Wallan are the three main locations for their build-to-rent offerings. But Kheir thinks it would require a lot of different properties and areas in several states for the notion to take off and isn’t ruling out competitors getting involved either. “I don’t know of anyone who is doing the same thing,” he says. “We believe that we are the only ones doing this at the moment. “Others will follow and so that should be the case.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Build-to-Rent Disruptor Plots Backyard Blitz

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