Established purpose-built student accommodation companies are diversifying into the build-to-rent space on the back of recent tax changes.
Cedar Pacific, a company founded in 2015 and headquartered in Brisbane, specialises in the construction of student accommodation towers. The establishment of Cedar Pacific was facilitated by Pamoja Capital, a Luxembourg-based firm.
With a current portfolio exceeding $2.5 billion, Cedar Pacific now oversees a collection of over 10,000 beds spread across 18 facilities. The majority of these properties are operated by UniLodge, a specialised operator in the student accommodation field.
It is now looking into the build-to-rent market.
It recently initiated a fundraising campaign for its inaugural build-to-rent fund, aiming to raise $500 million. The fund will be initially supported by real estate developments in Brisbane and Auckland, New Zealand, and subsequently expand its focus to other major cities across Australia.
“Build-to-rent is very similar to the purpose-built student accommodation space, in that our investors are developing assets as long term owners,” Cedar Pacific CEO Bernard Armstrong said.
He said these investors understand they need to take development risk to get assets in Australia due to a lack of preexisting assets, but said this is the same situation the purpose-built student accommodation sector faced 10 years ago.
“We’ve been down the development road on this path for many years,” he said. “We have our battle scars.”
There are obvious similarities between the two asset classes, from providing high amenity buildings, general upkeep and creating welcoming communities.
PBSA operators already have the expertise and the platforms to run a fully rented portfolio, which is why many see it as a natural next step for investors to pair with these operators.
Savills Capital Advisors has been chosen by Cedar Pacific to oversee the equity raise for their new fund, which is set to be initiated with two developments: a 39-storey tower comprising 358 new apartments in Auckland and a 32-storey tower situated in Brisbane.
Upon completion, the build-to-rent projects will be operated by Essence Communities, a subsidiary of UniLodge.
Mr Armstrong said BTR is new in Australia, and as a result, domestic institutions and vehicles do not understand the asset class as well as their overseas counterparts.
Despite this, once the asset class becomes more mature, Mr Armstrong has “no doubt” the local funds will get into it.
“They’ll be big players in the next round when the first movers have developed portfolios and are looking to recycle the capital,” he said.
“Institutional investors were struggling with the tax rate and the government has made a major step in the right direction to help level the playing field and I think that’s going to be the catalyst that brings significant capital,” he said, referring to recent changed to the MIT withholding tax rate.
Similarly, the founders of Scape Australia, the leading owner-operator of purpose-built student accommodation in the country, have forged a partnership with Dutch investors APG Asset Management and Bouwinvest to take advantage of the build-to-rent sector.
While awaiting regulatory approval, the joint venture aims to attract additional institutional investors through an additional equity raise.
The initial target is to develop at least 10,000 “rent-to-live” apartments in urban areas with convenient access to transportation by 2030.
