Construction Hack Drives $206m Melbourne Tower Desks-to-Dorms Pivot

A stalled office recovery has prompted Futuro Capital to turn a Melbourne tower into 889 student beds in 15 months, at less than half the cost of a new build. Principal Ben Hopkins says the numbers made the decision for him. When the Melbourne office market failed to recover, Futuro Capital changed its plan for the 23,000sq m asset. The Sydney-based real estate private equity firm bought into the 235 Bourke Street building in 2021 with a two-stage strategy. It purchased the RMIT-occupied tower strata and the retail strata beneath it in a deal worth about $206 million. “We were looking to see if the Melbourne office market recovered,” Hopkins says. “That didn’t [happen], so we changed our strategy to convert the tower to a student accommodation building.” The result is due to be completed in December, ahead of a January student intake. Speed first, carbon second Time is money and it drove the conversion play, Hopkins tells The Urban Developer . “Speed to market is the most important thing,” he says. The alternative was a long, expensive wait. Re-leasing the tower as office would have meant “a 24 to 36-month downtime” in Melbourne, he says, while a ground-up rebuild “probably would have taken 36 months.” “My student count can be, let’s say, 75 per cent full next year and I’ve only got a 15-month downtime between rents.” ▲ Futuro Capital principal Ben Hopkins says speed to market was a key consideration for the adaptive reuse project. Then there is the cost of conversion compared to new development. “In terms of overall costs, it was $3200 a metre versus probably $8000 for new build,” Hopkins says. The sustainability story sits behind the financial one, not in front of it and is a “byproduct of the investment thesis”, according to Hopkins. Even so, the green credentials do work on the capital stack. Hopkins says some debt providers would offer cheaper interest rates based on the building’s sustainability profile, and on the equity side, “it does satisfy investment committees if we can prove up a thesis that this is going to be a sustainable building”. Reshaping an office floor plate Not every office building can accommodate a living use. This one could. “We had all four sides [of] natural light and a good shape building,” Hopkins says. The precast panel facade with large windows “could suit a single room occupier.” The team replaced every window in the building and the new ones open, a condition of PBSA. The floor plates were deep, the usual problem with converting big office buildings. Hopkins describes the footprint as “almost like a snorkel.” Rooms come in at 21 to 22 sqm, against a PBSA norm of 14 to 16 sqm. “Our rooms end up being quite generous.” The mix runs from studios and twin studios to four- and five-bed clusters. Each room has its own kitchenette and bathroom, and the clusters share a living space. Each floor also gets amenity space, including “working spaces, little private rooms to watch movies.” Pod bathrooms through the lift The program was the project’s biggest challenge. Futuro locked in builder Shape and worked through the risks with them. “We put all the risks on the table,” Hopkins says, “and then say, ‘okay, what’s important to you to just manage these risks’?” The key to the timeline was prefabrication, with 550 pod bathrooms installed across the floors. “We ... got a pod bathroom made for us that could fit in a building lift,” Hopkins says. ▲ Nori Maki is a tenant in the refurbished retail podium at the base of 235 Bourke Street. Removing a lift shaft allowed everything to be prefabricated off-site,and that “gave us a lot of speed in the program.” The alternative was to cut panels out of the facade, which would mean the need to to scaffold all the way around, adding considerable cost. The deadline carried real weight. “That’s the critical part, it’s a January opening [in time for university semester start]. If we miss that, we’re going to wait till the next semester.” Hopkins says the builders have delivered. “They’ll probably be ahead of program. This one is 100 per cent on time and on budget. In fact, we’re below budget. “A lot of thought went into the program more than anything. And that’s probably the key learning from this project.” The other is fire compliance, which he says can be a considerable challenge in older buildings. Keeping the lights on Futuro’s earlier work on the Sofitel Sydney Wentworth shaped its approach. For that project, the group refurbished more than 436 rooms in 10 months, shutting the hotel for just five weeks. Rooms were reopened in stages. “The whole idea of doing an adaptive reuse is if you can try to stage it as well, you can create income along the way,” Hopkins says. The same logic applied to the retail below the tower at Bourke Street. The old arcade was redesigned by FK from about 1300sq m to 4300sq m over two-and-a-half levels, anchored by a TK Maxx flagship of about 2500 square metres. Hopkins says the retail component is 95 per cent occupied and eagerly anticipating the high volume of foot traffic attached to student accommodation. ▲ Hopkins says the experience of renovating the Sofitel in Sydney had informed the approach to keeping the lights on at 235 Bourke Street. Operations will be handled by Unilodge under a Futuro-owned brand, Studeo. The building has seven staff and is built for digital convenience. Marketing is already running, and the target is “75 per cent next year,” with the first semester intake setting the real number. “We won’t know the results until March next year.” Hopkins argues demand is there. “There’s still a lot of pent-up demand. There’s still an undersupply of student accommodation in Melbourne and across Australia.” Not a rinse and repeat Futuro does not plan to repeat the model. Hopkins calls the Melbourne conversion a “single asset deal,” held for the long term. “We’ve built the building, we don’t have to sell it straight away.” The Futuro focus is on building a co-living portfolio. “We really want to get at least 1000 beds in Sydney first before we start to venture out to the other locations,” Hopkins says. New South Wales is the starting point because of the planning regime, which Hopkins says is “very straightforward” compared to other states. The product is fully furnished, “no bills, no utilities,” with digital keys and “agent-free viewing.” The target is sites of 80 to 154 units, near transport hubs, hospitals, and universities. Hopkins says the model is different from the US image of the concept. “In America, it’s seen as like chopping up houses. This isn’t that thing.” Capital remains the hurdle. “It takes a lot of convincing,” he says. “The problem with the [co-living] asset class is it’s very new. So people don’t know what real value is.” He expects competition. Hopkins says global operator Weave Living is among those eyeing the Australian market, which he sees as validation. He believes co-living’s commercial residential status keeps the tax position favourable.

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Taryn Paris
Tue 13 Oct 26

Construction Hack Drives $206m Melbourne Tower Desks-to-Dorms Pivot

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