Same same, but different: the big end of town returning to retirement villages

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It has been talked about for years – the return of professional investors, led by the super funds, to the retirement village sector. And now we are seeing green shoots – but different to what has been hoped.

Old hands will recall that Macquarie Bank created the Retirement Village Group in November 2007 with $850 million sourced from superannuation funds specifically to buy retirement villages, like the purchase of the Zig Inge group of 17 villages for $641 million.

By mid-2008, with the GFC, they couldn’t give away the villages and the super funds were severely burnt. Worse, they had to hang in for years to get part of their money back, with the result that the super funds did not want to hear about villages again – until now.

As all property prices have grown while income return has stayed relatively stable, the top investors are looking for niche property categories to invest in (same as 2005-7).

The first tentative steps were taken by First State Super (now Aware Super) buying into Oak Tree Villages in 2017.

In February this year, Aware Super bought 25% of Lendlease Retirement.

But here is the difference. Talking to Damien Webb (pictured right) at Aware Super last week, they confided they are unlikely to invest further in the mature Australian retirement village market: they are more likely to invest in the blossoming UK village market.

They like being engaged with new development or refurbishment programs and see faster developing markets in the UK and Europe.

Similarly in the Australian Financial Review last weekend, Washington H. Soul Pattinson chief executive Todd Barlow (pictured right) said they are going to focus on retirement housing as an investment segment, but they specifically like the work that Shane Moran’s Provectus is doing – which is developing boutique high end retirement villages rather than established, mature villages.

‘‘Health and the ageing population is definitely one of those things we’ve done a lot of work on. I’m sure that we can build out some very significant investments, and given the ageing population this is one area and we really like what Provectus is doing.’’

The first joint investment with Provectus is a 37-apartment beachside development in Cronulla (Sydney). Its first 10 unit sales averaged $2 million each.

He went on to say they need scale in the sector. With retirement living, they want to grow but there is no mention of traditional villages. They appear to want to develop new product for the new customer, like Aware Super.

It is in this light that Stockland is still seeking a capital partner to join in in its traditional village business – a six year search now – while it pivots to land lease communities.

The big end of town wants into retirement living again, but to a different strategy to 2001-7. Where does this leave the owners of existing villages who want to get out? Remember, 65% of villages are now older than 25 years – old product for today’s new market and consumer.