Investment manager Cedar Pacific has joined forces with Japanese timber, housing and building materials giant Sumitomo Forestry on plans to develop a $1.2 billion portfolio of build-to-rent apartments, where much of the focus will be on sustainability. Source: The Australian Financial Review
Under the deal, Japan’s Sumitomo will acquire just short of 50% equity stakes in build-to-rent projects undertaken in the JV partnership, starting with a $375 million development already under construction in Brisbane.
Cedar Pacific – best known as a developer of student accommodation towers, but which flagged a move into BTR in 2020 – will retain a minority equity stake in each BTR project while introducing other investors into the deals alongside Sumitomo.
Cedar Pacific chief executive Bernie Armstrong said the fund manager preferred to stay silent on the size of its BTR raising “until the capital is finalised”, but the initial portfolio of five assets and 1600-2000 rental apartments was expected to deliver unlevered yields of 5.75% to 6% on cost.
The platform will establish a new BTR brand to be managed by Essence Communities, a subsidiary of student accommodation operator UniLodge Australia (which is majority owned by private equity firm Pamoja Capital, the backer of Cedar Pacific).
It is the latest in an expanding pipeline of BTR platforms and projects aiming to deliver thousands of rental apartments in a market starved of supply.
Salta Properties, owned by the Rich Lister Tarascio family, revealed last month it had ambitions to create a $3 billion BTR portfolio, while fellow Rich Lister Tim Gurner and his JV partner Qualitas have similar ambitions. Macquarie’s Local, Daniel Grollo’s Home and offshore players Greystar and Sentinel are some of the other prominent players in the nascent sector.
BTR projects undertaken under the Cedar Pacific-Sumitomo partnership will draw on the Japanese company’s expertise in the development of timber building materials for residential construction and Cedar Pacific’s track record of developing and managing a $2.5 billion portfolio of 18 student accommodation facilities since launching in 2015.
“There will be a high use of timber in these BTR projects, which will all be net carbon-neutral and aim to achieve five-star Green Star ratings,” Mr Armstrong told The Australian Financial Review.
As an example of its commitment to achieving high ESG credentials, Cedar Pacific was in due diligence on the acquisition of an office building south of the Melbourne CBD for adaptive reuse as apartments, Mr Armstrong said. “We are looking at using lightweight timber on the roof to give us more storeys.”
The JV partnership will be seeded with a $350 million BTR project in Brisbane already under construction by Hutchinson Builders and due to be finished by 2027.
The 50 Quay Street development on the site of the former Children’s Court is part of a Queensland government BTR pilot project that will offer 475 rental apartments. Just over half of these will be available at discounted rent subsidised by the state government.
The JV pipeline also includes projects in Canberra and Auckland.
Savills Capital Advisors and Savills Australia and New Zealand are advising Cedar Pacific on its capital raise.
Echoing the comments of others in the industry, Mr Armstrong said uncertainty over the tax regime for BTR investment was a major concern for offshore investors.
“I just got back from a trip to meet with investors, and it’s the number one thing they are worried about. It just keeps changing so often. Foreign investors are worried that if they bring capital in, they won’t be able to get it out,” he said.
“Large offshore institutional capital invests actively in this asset class in other markets, as do almost all the Australian super funds. But to date, their investment in BTR in Australia has been woefully low.”
Mr Armstrong estimated about $400 billion of capital was needed over the next three years to deliver 200,000 apartments and keep up with housing demand being fuelled by record migration.
“BTR is one potential solution, but not the only solution. I would expect it to grow in stature but not overtake build-to-sell units and single family homes. The point being that the problem is big, and we need to attract capital to fund the growth,” he said.
