Mirvac to launch ‘build to rent’ fund to ease stress on housing

Mirvac is hoping to attract institutional investors for the launch of the nation’s first build-to-rent apartment scheme.

Mirvac chief executive Susan Lloyd-Hurwitz.

Mirvac Group is preparing for the launch of the country’s first major build-to-rent apartment vehicle as it looks to draw institutional investors into a business that could ease stress on the housing market.

The novel scheme would see Mirvac build and hold units in capital cities with the backing of major superannuation funds that reap returns from rentals paid by people living in the dedicated blocks operated by the company.

Mirvac is hoping to steal a march on local competitors, including Lendlease and Macquarie Group, that had flagged plans in the area but had yet to secure sites to launch their products to external investors.

Mirvac, led by chief executive Susan Lloyd-Hurwitz, sees opportunity for the sector to eventually grow to the size it has in the US, where it is larger than the real estate investment trusts that hold office buildings, shopping centres and warehouses.

The local sector has been held back by the generous tax treatment allowing individual investors to negatively gear properties but governments have signalled a tougher approach, with Treasurer Scott Morrison last month flagging a crackdown on the depreciation of second-hand household items and Opposition Leader Bill Shorten proposing to curb tax breaks in the area.

Returns on investing in apartments are also becoming more attractive to superannuation funds as top buildings and malls are now producing lower returns, with major assets trading on returns of less than 5 per cent this year.

“Mirvac believes that the time has come for an institutional build-to-rent sector in Australia to provide better certainty and quality to tenants,” Ms Lloyd-Hurwitz said.

The group is preparing to open up its books to investors, with four to six Mirvac projects identified as having the capacity for specialist multi-family towers. “We confirm we are preparing to invite capital partners to invest with us in a fund to deliver on this opportunity,” Ms Lloyd-Hurwitz said.

The group rolls out about 3000 apartments and housing lots annually, making it one of the country’s largest producers of new stock, giving added weight to its decision to set up a multi-family apartment fund.

It is looking to capitalise on its reputation as a quality designer and builder and will focus on middle to upper-end apartments, with its efforts pitched at a higher end. Mirvac is also recruiting a team experienced in managing apartment blocks and will not outsource their management to local agencies or an international operator.

“One of Mirvac’s strengths is our integrated model. We will be capitalising on this by delivering property management services ourselves,” Ms Lloyd-Hurwitz said.

She added that there was “deep expertise” in global markets, particularly in the US and Britain, “where institutional rental markets have been very successful; we are interviewing seasoned executives to join us”.

The company has been riding the Sydney apartment boom. It is close to completing its Harold Park project and has developments under way at Bondi, Green Square, Waterloo, St Leonards, Marrickville and Homebush.

The company unveiled its Pavilions development — 690 apartments at the gateway to Sydney Olympic Park — in February and executives said parts of this four- building project could be suited to multi-family accommodation.

“We have earmarked a potential site in Sydney as the first opportunity,” Ms Lloyd-Hurwitz said, but she declined to provide further details.

A clutch of local players, including Melbourne-based developers Grocon and Salta, student accommodation specialist Scape, and US giant Sentinel, are forming vehicles for institutions to invest in housing.

Lendlease has set up a £1 billion ($1.65bn) apartment fund in London and Westfield has flagged plans to raise third-party capital for planned apartments at London’s Stratford.

Kylie Rampa, Lendlease chief executive, property Australia, said at The Australian’s Better Cities panel in June that the build-to-rent model was a hot topic in the industry. However, she added that more collaboration with government was needed.

“Rental and tenure for renters is a huge issue, and if you look globally, the multi-family market is an extremely deep institutionalised investment class and the whole world is watching what can happen here in Australia because there is such strong demand for it,” Ms Rampa said. “We have some challenges from an investment perspective.

“The yield is lower in Australia because we have GST on all of our costs but no GST relief — so our costs are 10 per cent higher.

“If you ‘develop to sell’, you get a rebate for that, so ‘develop to rent’ can’t compete with ‘develop to sell’ at the moment,” she said.

However, LendLease is still interested in getting to the area.

“The business of providing a really attractive rental product could be a huge opportunity in the Australian market. So it’s going to have to be collaboration between industry and government to make this work from a taxation perspective,” Ms Rampa said.