[+] Growth Mindset: Sentinel Eyes Alternative Markets in Melbourne Expansion

Build-to-rent giant Sentinel is expanding its footprint in Melbourne with the acquisition of a 6528sq m site at North Melbourne, its second in the build-to-rent capital. The site at 23-47 Villiers was settled last month for an undisclosed sum in a deal with the Australian Red Cross. It’s a stone’s throw from one of Melbourne’s growing build-to-rent hubs at Queen Victoria Market where Mirvac’s first Melbourne project, Liv Munro , opened last year, and Lendlease recently announced a 560-apartment build-to-rent tower as part of its $1.7-billion Queen Vic Markets redevelopment . Sentinel managing director Keith Lucas is an architect and a self-described “transplant”, bringing his US experience to Australian shores. He says it is encouraging to see the groundswell of support and development across the sector as it finds its feet in the Australian market. “We’ve done [build-to-rent in Australia] for a number of years,” Lucas says. “I’m really impressed by other players in the market and what they’re doing. It’s really encouraging just the way in which this asset class has taken off and the application of strategy. ▲ Sentinel managing director Keith Lucas says the Element build-to-rent project in Subiaco has been 98-100 per cent leased for the past two years. “Our experience and our ability to see what build-to-rent buildings look like in the next 10 and 20 years and when it transacts again and the efficiency of operations is what sets us apart.” The international developer and real estate manager has $14.3 billion of assets under management and 28,000 rental apartments in its portfolio globally. Early mover in build-to-rent markets Sentinel is consistently at the crest of the wave when it comes to identifying build-to-rent markets. It was the first to move into Perth and Adelaide , and earlier this year put its foot on a site at Robina for the Gold Coast’s first purpose-built build-to-rent . The developer also has its eyes on the Sydney skyline. “We’re actively looking at Sydney, we would love to be in that market,” Lucas says. “But there are some barriers to entry. Finding properties in the right locations … you’re going to have to wait out any number of market conditions.” ▲ The site for Sentinel’s build-to-rent debut on the Gold Coast neighbours the city’s CBUS Stadium. The latest project in Melbourne will comprise 350 premium, sustainable rental apartments across two mid-rise buildings on the significant site. The North Melbourne project is targeting carbon neutral certification and a 5-Star Green Star rating. But Lucas says the project’s main drawcard will be its amenitised rental experience and premium location. “That location specifically and its close proximity to the biomedical precinct is a real driver in terms of quality of local employment as well as the residential neighbourhoods surrounding it. There’s also the new Arden Metro station going in there,” he says. Its proximity to the Royal Melbourne Hospital was also a huge drawcard for the developer. Lucas says that trends around rental vacancy come and go, but developers needed to ensure the long-term attractiveness of their build-to-rent projects. “Location is the primary driver for what it is that we do. “There’s huge pent up demand for housing but we like to look at these acquisitions in terms of the long term. There will be a time when vacancy rates are not as low, you need to be strategic in site selection, and the places we have selected will be appealing in every market.” Build-to-rent still appealing for builders Lucas acknowledges the challenges in terms of getting projects out of the ground. Sentinel currently has its West Melbourne project, the 172-apartment The Briscoe, under construction. “It’s a challenge, we have an evolving landscape at the moment, particularly in the residential space. While the door may start to close when you mention residential development, it opens back up again when you say build-to-rent,” Lucas says. “The asset class has garnered more of an understanding in construction contracts and sub-contractors. They understand that you want to deliver at scale and at speed. “Our West Melbourne project (Briscoe) is on track to complete at the end of this year. But for our North Melbourne project, realistically we won’t get into the ground until 2025, there’s an extensive planning process to undertake between now and then. ▲ The 172-apartment build-to-rent project The Briscoe at West Melbourne is due for completion at the end of this year. Lucas says Sentinel continues to focus on mid-rise build-to-rent communities of between 250 and 350 apartments. He says this enables them to work with a broader range of builders. He says they may look to do more vertical communities into the future but it was based on a site by site analysis. MIT tax changes ‘moved the needle’ The taxation changes from 30 per cent withholding tax to 15 per cent has greased the wheel somewhat according to Lucas. The North Melbourne site has been purchased as part of its venture with Dutch pension fund manager PGGM. The latest acquisition aligns well with PGGM, whose members predominantly work in the health sector. Lucas says while there is a weight of domestic and international capital looking for exposure to the inflation hedge build-to-rent asset class, there was a lot to navigate to get the deal over the line. “[The tax change] moves the needle but it’s an evolving landscape on that one too with taxation. There’s a lot of international capital interest in Australia’s build-to-rent sector, but the due diligence required, the navigating of international rules on investment, all of that takes time,” he says. “We’re seeing lots of capital both domestically and internationally. But these are deals that take time to get done.” But the buy-in from Australia’s renters has gathered pace recently as more projects come out of the ground and the foundations of the new housing typology crystalise. Market acceptance on the rise Lucas says there has been “a huge acceleration” in understanding and market acceptance of build-to-rent as a housing typology in the past two years. At the Subiaco property, Element, Lucas says they have been at between 98 and 100 per cent leased for the past two years, with renewal rates of about 60 per cent. “We’re thrilled with the outcome,” he says. “It’s all about delivering the right product into the right market. It’s all about location, location, location – and thankfully we’ve been very happy with the locations we’ve been able to secure to date. “You have to have a realistic view of amenity for the renter and how you can drive value. We are a premium product, not at the luxury end of the market. We focus on amenity outside the front door as much as within. One of the things that is evolving the fastest in build-to-rent amenities is what working from home or hybrid working from home looks like, particularly with our [North Melbourne] site and its proximity to the hospital.” The premium build-to-rent developer is not providing affordable housing, it is highly amenity and experience-driven renting. But Lucas says eventually he believes there will be a range of build-to-rent at different price points that could help to tackle affordability issues plaguing the Australian market. You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Growth Mindset: Sentinel Eyes Alternative Markets in Melbourne Expansion

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