Macquarie joins build-to-rent rush as hot property market locks out buyers

The millionaires factory is set to become the latest entrant to the country’s nascent build-to-rent sector as the race to secure new projects heats up.

Macquarie and Partner Group are targeting a site at 346-350 Macaulay Road in Kensington.

The millionaires factory is set to become the latest entrant to the country’s nascent build-to-rent sector as the race to secure new projects heats up.

Investment bank Macquarie is making a move into the build-to-rent industry in the hope of driving higher and more steady returns from the sector than traditional commercial property.

The area is running hot as the surge in house prices locks a generation of prospective buyers out of the market and developers are keen to build for the new group of long-term renters.

They are bowling up projects that range from luxury city abodes to low rent affordable buildings in outer suburbs as they seek to capture a wide sweep of the market.

Big companies ranging from traditional developers like Stockland and Lendlease are also taking their first steps in the area and a new fund run by the ARBT Group is proposing to list on the Australian Securities Exchange.

They are running up against players that have already set up including Mirvac, which has a building in the Sydney suburb of Homebush, the Daniel Grollo-backed Home business, which has sites in Sydney and Melbourne, and big global houses like Greystar that have set up shop.

The fact the area has been combed over by many of the world’s top investment houses and they are all fighting for sites has sparked concerns that local site prices could be getting too hot as developers must convert traditional plans to suit the specialist properties and also take on managing them long term.

The powerful institutions believe they will be able to supplant the traditional negative gearing model where mum and dad investors have provided the bulk of rental stock.

But they have run up against federal government disinterest in removing tax barriers with Prime Minister Scott Morrison favouring traditional home ownership amid political concerns that industry super funds could take on a significant role in the sector despite not committing heavily so far.

Macquarie’s move is coming via its asset management arm which has launched a new Asia-Pacific fund that has nominated the rising residential area as a key focus.

The bank’s funds are backing a move into build-to-rent by Partner Group, an advisory house, that has a track record in the area.

Partner executives have experience on projects like the 2018 Commonwealth Games Athletes’ Village on the Gold Coast and the 490 apartment QVM build-to-rent development in Melbourne.

The groups are targeting a site at 346-350 Macaulay Road in Kensington. It was put on the market by United Asia Group after it received offers for the 424-apartment development.

The vendor paid about $35m for the 8803 sq m site, formerly home to Vision Australia, in 2018. With plans and permits in place it is expected to snare close to $50m.

UAG founder Nicole Chow said when the site was put on the market that the company had fielded offers from institutional groups who wanted to move fast but she was uncontactable on Wednesday.

JLL’s Josh Rutman, Noral Wild and David Hill and Colliers International’s Trent Hobart, Hamish Burgess and Jozef Dickinson are handling the sale but declined to comment.

JLL figures show more than 2500 of the units are under construction with expected completion dates spanning over the next three years. There are an additional 2000 units with plans approved having completion dates through to 2024.

The bank itself already has a presence in the area overseas.

Macquarie Asset Management this year set up Goodstone Living, a specialist real estate development and investment management business, to capitalise on what it called the significant market opportunity in Britain’s purpose-built rental housing sector.

Macquarie was seeking to raise £1bn ($1.87bn) for the British company and displayed its global expertise and claimed experience in the build-to-rent sector, by advising specialist multi-housing operators to raise more than $US14bn ($19bn) from institutions over the past decade.

The local fund will not only target build-to-rent but also student accommodation, co-living housing and manufactured homes, as well as areas like logistics.

The bank built up a worldwide real estate empire before the global financial crisis but retreated from the area and sold its listed trusts to Charter Hall.

It has since re-emerged as a funds manager in its own right and as backer of operations that are looking to expand and has already made successful plays in the funds businesses.

Others are also bringing their experience back home. Lendlease has already built some of the top build-to-rent projects in London and has projects in across the US.

Lendlease Australia CEO Dale Connor pointed to the opportunity to bring skills that the company had honed offshore into its home market.

“We’ve successfully delivered a number of build-to-rent projects internationally, and we’re interested in exploring opportunities to bring that expertise to the Australian market,” he said.

Investa is also forging deeper into the area and has set up a platform to run and own the assets. Canada’s Oxford, which part owns Investa, is backing the company’s Indi build-to-rent management platform.

Indi has more than 900 apartments in its pipeline at two development sites in the Sydney CBD and in Footscray, Melbourne, and it is targeting a portfolio of more than 5000 apartments.