Renting has become a popular lifestyle choice for many people who want to be near their workplaces and also be able to access various amenities. Sensing the business potential, Mirvac has recently launched a new build-to-rent (BTR) residential club with Clean Energy Finance Corporation (CEFC) entering the project as its first investor.
Mirvac’s build-to-rent project is based on the multifamily housing concept popular in the US and Europe where several apartment developments are held by institutional investors and rented out for the long term. The first developer to enter this sector in Australia, Mirvac is beginning work on a new apartment building, Indigo at their Pavilions housing project in Sydney Olympic Park
Just under a year ago Mirvac started looking into the sector, and has now secured CEFC for a 30 percent interest, which will be used to build a new-build apartment building "Indigo" at Sydney’s Olympic Park.
But this is only the tip of Mirvac’s BTR expedition.
“We are actively looking at a number of opportunities across Australia. Sydney and Melbourne are the core locations initially with proximity to transport, amenity and employment as the key investment criteria,” says Mirvac’s Adam Hirst, general manager Capital Allocation.
“We have spent a significant amount of time studying and learning from overseas BTR models. While we believe Australian BTR will be most closely aligned with the UK model, over time it will evolve to be uniquely Australian, given culture and customer is so centric to BTR.”
“One of our key learnings is that customer service has been a challenge in other countries who have adopted the BTR model. We aim to resolve that with the seamless integration of technology coupled with on site management to make service delivery a smoother experience.”
“Home-ownership is still the cornerstone of the Australian dream and while we are seeing the market moderating we know it is still out of reach for some. BTR acknowledges this, as well as the changing nature of tenure choices and provides an alternative housing choice and security for those saving for a deposit or deferring home ownership for any number of reasons’” says Hirst.
“There is also an increasing number of professionals and double income families who prefer location over ownership, choosing to rent close to work and the places they value rather than own in the suburb they can afford”
“We anticipate BTR customers as coming from a range of backgrounds, including people who see it as a stepping stone before home ownership,” he says.
“Mirvac’s BTR offering,’ says Hirst, “provides a stable investment with steady return metrics to institutional investors. BTR is one of the most highly valued asset classes for institutional investors given its combination of stable cash flows, scalability and diversification.”
“The way we will deliver BTR buildings coupled with the operational efficiencies and service level provided to customers combine to provide an attractive risk adjusted return,” he says.
“BTR also allows us to develop a whole of life customer with product to meet the needs of each life stage, from a mid to long-term renter, to a purchaser, investor and empty-nester renter. Property is cyclical and BTR is counter-cyclical, enabling Mirvac to conduct development activity throughout all markets,” notes Hirst.
“At its core,” says Hirst, “ BTR is turning rental housing into a consumer product.”
“It flips the traditional rental housing model on its head and puts the customer at the centre of decision making.”
“We have conducted customer research on many of the features we will be providing in our BTR product (longer term leases, on site management, improved amenity, additional white goods inclusions etc) and the response has been positive,” he says.
Getting back to the "Indigo" development, this will be designed to reduce greenhouse gas emissions by 40 percent over a typical apartment building, mainly thanks to features like efficient glazing, LED lighting, energy-efficient appliances, solar PV, and water efficient taps, toilets and showers.
As with traditional build-to-rent concepts, Indigo will have high-quality amenities and a resident program, while Mirvac will act as the development, investment and property manager.
While renters can take advantage of the build-to-rent concept through better choice, quality and security of tenure, Mirvac, as a pioneer in the sector, benefits from a new asset class, a secure revenue stream from the rent, and a growing customer base. Though many of the renters in this segment have made a lifestyle choice, there are others who rent because home ownership has become unaffordable – these trends indicate the future of housing dominated by tenants.
Keeping the focus on sustainable design, Mirvac’s first build-to-rent project is designed to reduce greenhouse gas emissions, and increase thermal performance and energy and water efficiency.
Indigo is expected to be completed in 2021.