Build-to-rent (BTR) has consistently peppered the residential sydney builder conversation over the past few years, often touted as filling in niches and providing an ideal middle-ground solution for challenges that have arisen during Covid, not least the rental crisis around the country.
In Canberra, The Property Tribune recently noted the format caters well for the transient nature of the capital’s population, and is unsurprisingly a hotspot for the product.
Large funds have been getting behind BTR lately too, with Sentinel Fund Manager Australia and PGGM putting some $1.5 billion into BTR earlier this year.
Sites are also beginning to also be sold with a view to developing BTR, one site in Dee Why with such an opportunity cropped up a month ago.
A recent report also expected the sector to gain momentum into the new year.
Build-to-rent seems to be the solution to yet another challenge in the residential industry, this time killing two birds with one stone: navigating the more challenging lending environment and alleviating the rental crisis.
Matt Royal from Development Finance Partners (DFP) said he believed BTR offers a compelling alternative to build-to-sell (BTS):
“Australia has a critical undersupply of rental properties with a current national vacancy rate sitting at around 1 per cent, according to SQM’s latest research, and there is every likelihood that the rental vacancy rate will continue to fall until the housing crisis can be addressed,” he said.
“BTR is a great way for second and third tier developers to capitalise on this demand whilst building equity in their property portfolios, without having to meet stringent pre-sales requirements placed on them by many lenders.”
Matt Royal, Development Finance Partners (DFP)
It is not the first time this type of idea has been suggested, a Savills report in September highlighted the fact build to rent could be delivered to market with no presale requirement for construction and play a role in improving housing and rental affordability.
Switching to BTR from build-to-sell has also proven to be a good option for one developer who could not meet lender pre-sale targets.
Mr Royal said DFP negotiated the change in August 2022 for a 50-apartment project in Chermside, Brisbane.
“The project was heading towards failure in its current format, so we brought in our development management partners, Highgate Management, which specialises in distressed project work-outs,” said Mr Royal.
Highgate Management worked closely with DFP to determine the best use for the site and together with Sydney-based co-living rental specialist, BNTO, they gained development approval for a fully reconfigured build-to-rent project featuring 138-micro-rental (co-living furnished apartments) over 11-levels.
“Under the new BTR configuration – targeting young, professional tenants – the project will deliver substantially higher returns than the 50-apartments previously approved concreting bankstown most importantly, as a BTR, it now stacks up as financially viable for its investors,” added Mr Royal.
He also noted that “The appeal of build-to-rent is that the end project can either be sold in one line or it can be retained in whole or in part as a rental pool, to create cash flow and added to the balance sheet to give the developer greater borrowing strength for future projects.”
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