New retirement village competition: largest build-to-rent CAPs development kicks off in Melbourne

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The largest build-to-rent development approved in Australia will be a major concern for retirement village operators.

Why? Because the CAPs model is basically the same as retirement villages but without the upfront payment. Instead you pay rent as you go, leaving you in control of your cash savings for when you need or want it (medical or travel for instance).

The risk is that it will capture the early 70s market and they may never need to think of a retirement village in their late 70s.

The competitive model

Here is the concept. Build to rent refers to a Community Apartment Project (CAPs) development in which all apartments are owned by the developer and leased to tenants. Unlike normal rental accommodation in Australia which has leases of one to three years, with ‘Build to Rent’ the leases can be 10 to 15 to 50 years. So you have certainty that your rented home is your home for as long as you want it.

This development is in very upmarket South Yarra. Quality rentals (2bed/2bath/2cars) is about $850 per week for short term (up to 3 years) rental. Sell your local house at $2M at age 70 and rent for 20 years: with 3% CPI rent increases and $850 commencement rent, you will pay out $1.2M over the 20 years, leaving $800K.

As a retiree at 70 you have $2M in cash reducing to $800K at the age of 90.

The developers say they will be a community creating (CAPs) project providing management and it will include retail shops, gyms etc and close to transport and medical service. On top of this, it is intergenerational, with people of all ages creating a vibrancy. Sounds appealing.

New class of developer competition

Greystar Real Estate Partners – a global leader in the investment, development and management of high-quality rental housing properties – together with construction company Fender Katsalidis – on Monday announced the planning approval of this new build-to-rent development of 625 units and 2,400 square metres of retail / commercial office space. The location is in the Inner Melbourne suburb of South Yarra.

“This purposeful design will not only deliver a best-in-class build-to-rent experience to consumers with expertly managed apartments, workspaces and abundant amenity areas, but it will also introduce an innovative new flexible living typology to Australian renters,” said Chris Key (pictured right), Managing Director for Greystar in Australia.

“This project is not just the largest development of its kind, but it is an important step in increasing the diversity of housing choice in Australia.”

Institutions are attracted to fund

“We worked closely with the City of Stonnington to ensure the planning process was driven by collaborative innovation. While build-to-rent is an emerging housing product in Australia, we believe it is simply a matter of time before this residential sector gains a foothold as a primary investment allocation for institutional investors in the Australian market.”

“The City of Stonnington has worked closely with us to understand the nuances of the build-to-rent model, and as a result, we have collectively delivered our shared vision of a truly innovative development plan,” said Mr Key.

Already a $10B market

It was known that Greystar had amassed a $1.3 billion war chest to fund new Australian build-to-rent projects.

Australia’s build-to-rent pipeline is fast approaching 15,000 units, as tax and planning reforms in some states help the new asset class gain a foothold, with the market now worth more than $10 billion, with an additional $3-$5 billion in projects at various stages of due diligence, according to CBRE’s Build-to-Rent Development Pipeline report in February.

Mirvac has a build-to-rent project at Sydney’s Olympic Park and has set its sights on 5,000 build-to-rent apartments under management within five years. Lendlease is looking to convert some of its proposed developments, while Queensland has new large-scale schemes underway led by Frasers Property Australia and Mirvac.