Rental sector feels capital squeeze as Cedar Pacific gets tower backers

Australia’s build-to-rent market is in a state of flux, with big players striking up new capital alliances even as the market faces difficulties.

The nation’s build-to-rent market is in a state of flux, with big players striking up new capital alliances even as the market faces difficulties due to uncertainty about rules for foreign investors.

The rising sector has been hit by the political logjam over planned reforms to the taxation of managed investment trusts, which has hampered fundraising and led some players to pull back.

Listed group Mirvac, at the industry forefront for the past five years, told a Senate inquiry into proposed new taxation rules the uncertainty is having an impact. The company plans to grow its own $1.8bn build-to-rent fund into new areas of housing after winning the backing of Mitsubishi Estate Asia, but a series of fundraising deals have since fallen away.

“The BTR sector has almost stalled over the last 12 months, with limited additional capital entering the sector post-Mirvac’s successful raise,” Mirvac build-to-rent general manager Angela Buckley’s submission said.

“While market delivery challenges like construction costs contribute, the main factor has been investors waiting for the implementation of MIT legislation with effect from 1 July, 2024, since its announcement on 9 May, 2023.”

Mirvac argued that to have more housing choices and affordable options, “we need to attract institutional investment in BTR housing from both domestic and foreign sources”.

“However, the BTR sector requires certainty and equity in investment settings and planning time frames to attract appropriate capital.”

Cedar Pacific strikes Brisbane property partnership with British funds house Grosvenor and property investor Moata Ventures.

The Community Housing Industry Association, National Shelter and the Property Council of Australia said in a joint submission that build-to-rent housing could help alleviate the housing crisis and deliver 105,000 homes.

“BTR, though new in Australia, is a proven housing model in countries like the UK, Canada and the US, providing secure tenure for renters in high-quality accommodation. All sides of politics agree that Australia is in a housing crisis, and it is time to support effective solutions like BTR,” Mirvac’s submission said.

But some investment managers are winning backers for their projects. Cedar Pacific has announced British funds house Grosvenor and global property investor Moata Ventures will support its build-to-rent project in Brisbane.

They came in on the second close for the project, already backed by Japanese-backed Sumitomo Forestry Australia, indicating the ongoing interest in the living sector, despite the issues of uncertainty.

In the heart of Brisbane’s CBD, the Quay St project falls under Queensland’s affordable BTR housing pilot program. It is split between market and affordable homes, with about 50 per cent of the apartments at 25 per cent below market rental levels.

It will have 475 apartments close to transport, shops and entertainment. Construction has begun with Hutchinson Builders and is expected to finish by the end of 2026.

Cedar Pacific chief executive Bernard Armstrong said Grosvenor’s global experience in the sector, as well as a deep understanding of the Australian market, “will enhance the project greatly, helping us to create a state-of-the-art asset that meets market demand”.

Grosvenor Diversified Property Investments will back the project as part of its global investment portfolio, and Moata Ventures principal Neil Jones cited the compelling dynamics of build-to-rent in Australia’s key cities. Other sites are being turned over to student accommodation as capital raising is tough.

Build-to-rent platform Alt Living has axed plans for a major project in Franklin St in Melbourne’s CBD. The group was seeking to raise up to $200m for two projects in Melbourne after joining up with local developer Landream.

Canadian giant Brookfield and investment group Citiplan have swooped on the CBD site in a deal brokered by Cushman & Wakefield, and will instead develop a new student accommodation facility to be operated by Journal Student Living.

Alt Living will land bank a South Melbourne property and also look at opportunities in Sydney.