Once the Last Resort, Lifestyle Helps Drive Rise of Institutional Living

“Markets go up, markets go down; the one thing you don’t want to compete on is price,” Sherlock said.

Developers and operators must compete with general residential, not within or between institutional living classes.

Palm Lake’s Suzanne Jensen said that her land lease company was “not selling homes, we’re selling a lifestyle” at communities such as Pelican Waters [pictured top]. 

“It’s not about the four walls, it’s about what’s outside my doorstep. That has been probably the biggest part of our success.”

Palm Lake’s chief competitor is not struggling against the retirement sector (which is edging towards vertical metro projects, compared with land lease’s horizontal and coastal leaning). Instead, empty nesting is the chief competitor.

Jensen said that 90 per cent of her product was three-bedroom, double-garage, but was still considered downsizing among their target market. 

▲ Communities such as Pelican Waters are capturing capital that's escaped from office, Jensen said.

The cashflow and yield models can also be unique, which can be attractive for some investors but may require education.

One Living’s Joseph Scuderi said getting decision-makers “used to that nexus of looking at the investment, or looking at the income stream, has been very challenging”.

“As long as you can get the selldown rate, as long as you’re targeting the right markets with the right profile, it can be lucrative for institutional capital,” Scuderi said.

Jensen said that land lease was dealing with an enormous uptick in interest, partly driven by the flight of capital from the office sector.

“Institutional has caught on to land lease in the last five or seven years…the industry has tripled in size in the past five years in Australia,” Jensen said.

“I believe the attraction is that its very, very low risk.

▲ Institutional residential developments may have unconventional investment characteristics, speakers said.

“[But] there’s risks in scale. You can go too big, you can go too small.”

Sherlock said that flexibility, of tenure and lifestyle, was crucial to residents and could challenge developers. The co-living SEPP in NSW, for example, mandates a minimum tenure of three months, which is contrary to the needs of many residents. 

Meanwhile, PBSA rules and preferences around student-only or mixed environments, summer vacancies and 12-month tenures “doesn't necessarily give you the flexibility that the younger generation is looking for”.

“From build-to-sell, all the way down to a hotel: from our perspective, [the living sector] is all about flexibility,” Sherlock said.

But security and reliability, including of product type, can also be attractive to both investors and residents, according to Scuderi.

“We were able to acquire that capital by having a real focus on standardisation … and attainability,” Scuderi said.