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Build-to-Rent: A New Opportunity for Real Estate Investment Managers?

If you’re a real estate investment manager or real estate fund manager, then the steady rise of build-to-rent (or multi-family living) developments in Australia could represent a winning opportunity. In this article, we explain why that’s the case.

Although very few build-to-rent assets have been developed in Australia to date, those that do exist are showing tantalizing signs of shaking up the market.

Indeed, a report by Charter Keck Cramer looked at rental asking prices for Mirvac’s LIV Indigo build-to-rent development in Sydney Olympic Park. Otherwise known as “multi-family living” properties, the results were clear:

Build-to-rent apartments demanded higher prices compared to build-to-sell assets in the same suburb. Today, we’re going to analyze this new development model and discuss its potential if you’re a real estate investment manager.

Build-to-Rent: An Opportunity for Any Real Estate Investment Manager

Research from Savills states that almost 70% of local government areas within Australia’s five major capital cities are in need of more rentals. This indicates the potential for the build-to-rent model to become a nationwide solution and a driver of growth in the rental market.

Paul Savitz, Savills director of operational capital markets, said:

“As build-to-rent continues to mature as an asset class, we expect greater liquidity and economies of scale will put downward pressure on the sector’s risk premium.”

Early signs suggest this is already happening. Not only that, but it’s also having a positive impact on both property and job markets. In Brisbane, for example, Frasers Property recently developed its first project utilizing the build-to-rent model.

This is the second development of this nature in the area, with Mirvac having begun construction of their own multi-family living project last year. Leeanne Enoch, Queensland’s housing minister, is reported to have said that the two projects would create more than 500 jobs for the area. ​

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Key Factors Behind Build-to-Rent’s Potential

There are good reasons why this model’s generating such excitement among people like real estate investment managers, real estate fund managers, and real estate market analysts. Here are 3 factors that explain its potential:

1. Lender Appeal

Firstly, and perhaps counterintuitively, banks tend to prefer the vast loans required for multi-family properties versus the smaller ones issued for single-family assets.

Why? Because they’re more likely to generate reliable income each month.

After all, with single-family properties, factors such as a lack of tenants or late rental payments can have understandable implications for the repayment of the loan.

The opposite’s true for larger multi-family living projects. Here, the scale of the build-to-rent model allows developers to ensure consistent cash flow, making them significantly more appealing to lenders.

2. Expedience

The second factor in play benefits property developers and investors alike:

These types of developments help save time. Rather than acquiring multiple loans for multiple rental properties, a real estate investment manager, for instance, could obtain a single loan for multiple properties.

This a) is far more time-efficient and b) generates fewer bureaucratic obstacles. The expedience involved with the build-to-rent model also allows investors and real estate fund managers to scale their portfolios faster.

3. Financial Incentives

Thirdly, developers who adopt this model find themselves in an improved financial position that justifies the appointment of a property management company.

Alas, with a single-family asset, employing a service to handle the day-to-day operations of the rental can cut too significantly into profit margins. With the multi-family model, though, the higher volume of monthly capital that’s generated allows investors to absorb these costs without sacrificing their returns.

A Prime Opportunity for a Real Estate Investment Manager

The aforementioned benefits are driving interest in the build-to-rent model and creating new developments and jobs in the process.

Whether you’re a real estate investment manager in Australia or other real estate markets around the world, the early signs suggest this model’s an opportunity that’s well worth pursuing.

If you are a company considering hiring, we welcome the opportunity to present our services and capabilities. If you are a candidate, please check our jobs page or contact us to discuss your background, skills, and future aspirations. We always look forward to keeping in touch and exchanging ideas, insights, and opinions.

Sources:
  • https://www.theurbandeveloper.com/articles/build-to-rent-premium-prices-stack-up-in-emerging-market

  • https://www.investopedia.com/articles/personal-finance/041216/3-reasons-invest-multifamily-real-estate.asp

  • https://www.cbre.com/insights/reports/2022-asia-pacific-mid-year-real-estate-market-outlook#investment2

Sally Tremlett
Managing Director | Partner, Australia

+61 451 494 354

sally@aurexgroup.com

Ben Watt
Managing Director | Partner, Hong Kong

+852 6447 6750

ben@aurexgroup.com