Daniel Grollo makes return as build-to-rent developer

Customers are streaming into a new residential building in the inner-Melbourne suburb of Richmond being developed by Daniel Grollo’s Home operation.

Daniel Grollo is hopeful that Home, a build-to-rent development and investment business, will help resurrect his property dreams. Picture: Stuart McEvoy

Customers are streaming into a new residential building in the inner-Melbourne suburb of Richmond being developed by Daniel Grollo’s Home operation.

The display suite is busy, but the mood is very different from the days when the one-time builder was constructing big towers around Australia.

Now the businessman, resettled in Melbourne after a period in the last decade living in New York and running the famed Grocon, has a much lower profile.

But he is hopeful that Home, a build-to-rent development and investment business, will help resurrect his property dreams.

It already has seven sites in Sydney and Melbourne, and is even looking to tie up another CBD landholding in historic Flinders Lane in the Victorian capital.

Grollo was at a low when Grocon’s building arm fell into administration last year owing $104m. But he kicked $13.2m into a deed to pay creditors and is still fighting a legal battle against the NSW government’s treatment of the company at Sydney’s harbourside Barangaroo precinct.

And with the backing of Singapore sovereign fund GIC, he is back with the Home business, as a developer rather than a builder.

With property veteran Christian Grahame at the helm, Home is bullish about the prospects for build-to-rent in Australia.

The Home complex in Richmond, Melbourne.

Selling units is a tough ask with overseas buyers absent and investors curtailed, so traditional developers have switched to build-to-rent apartments.

Melbourne is the epicentre of the action, with supportive regulations and cheaper land costs allowing the developers to charge ahead with projects.

Home has been at the forefront of the industry, as it has a five-year history. But it is not alone and big money is pouring in, with the listed Mirvac leading the charge and rivals Lendlease and Stockland signalling their ­interest in the sector.

Big overseas players are also getting set with sites, with the likes of Greystar and Hines ­developing projects, and US private equity group Blackstone backing towers. All have big ambitions to capitalise on serving the generation of Australians who will rent for longer as house prices spiral upwards.

Many of them are offering a luxury approach, which renters would find hard to match if they were buying, while others are ­offering budget options.

Big institutions are also looking for pension funds to back their plans and help them hold their complexes in the longer term. Already, AustralianSuper is backing the Assemble operation, which has several sites in Melbourne.

JLL’s head of alternative investments, Noral Wild, says the local build-to-rent sector is “well placed to benefit from capital reallocation strategies as investors continue to restructure portfolios on the back of major structural changes that have accelerated since the onset of the pandemic”.

JLL says the large increase in build-to-rent over the past year has been driven by aggressive acquisition strategies from major players who have been scaling up, and by ambitious new entrants.

Even more money is likely to flow to the area once there is more clarity on federal tax changes that the industry is advocating, with global pension funds now on the sidelines waiting to get into the sector.

An artist’s impression of the new towers developers want to build next to Marvel Stadium.

JLL director Josh Rutman has worked on deals that have resulted in players such as Macquarie Group, Aware Super and US powerhouse Hines entering the sector and is seeing solid demand from more build-to-rent groups.

Cushman & Wakefield’s Lukas Byrns argues that the fundamentals of the apartment market are strong, and an under-supply of new apartments being constructed in Melbourne is ­supercharging the build-to-rent sector.

Byrns cites sustained long-term population growth forecasts and housing affordability challenges, as well as a structural shift in consumers considering renting for the long term as an alternative to owning a home.

Colliers’ Robert Papaleo says there has been a surge in major development site sales for build-to-rent developments in Melbourne. Last year, the specialist projects equated to 14 per cent of development site transactions.

A survey by the firm found the new asset class ranked as the third-highest sector of interest among investors in the Asia-­Pacific, with just over one-third of funds surveyed indicating they were planning to invest.

Colliers research found there were 3013 purpose-built build-to-rent units under construction in Australia across 11 projects due for completion this year. Another 1365 units were due next year and just over 60 per cent of potential projects yet to start were in Melbourne across 23 projects.

The developments are mainly premium offerings but the market is expected to become more diverse as it matures.