Investment manager Cedar Pacific is raising $500 million for a new seeded build to rent (BTR) fund, capitalising on recent tax changes supporting BTR development.
The new BTR fund has a pipeline of two seed assets totalling 833 units already under control with a further nine assets totalling 3,500 units in its pipeline, including four with development approval.
The two seed assets comprise a 39-storey tower with 358 new apartments located in Central Takapuna in Auckland, New Zealand and a 32-storey tower located in Brisbane.
The Brisbane project is set to emerge as the state government’s third pilot build-to-rent project, featuring 475 apartments of which up to 250 will be eligible for government-subsidised rent.
The fund’s investment strategy will target assets in key capital cities including Sydney, Melbourne, Canberra and Perth, with all properties targeting a minimum 5-star Green Star rating or equivalent on construction and operate as net carbon neutral.
The launch coincides with the Australian Government’s announcement of a reduction in the managed investment trust (MIT) withholding tax rate for newly constructed residential build-to-rent projects after 1 July 2024.
The change will allow foreign investors in qualifying jurisdictions such as Singapore, Canada, Japan, Netherlands, Germany, the UK and US for a reduced rate of withholding tax from 30% to 15% on fund payments in relation to BTR projects in Australia.
“Affordable and professionally managed housing is key to a growing population, fuelled by millennials, older Gen Z’s and the return of higher immigration numbers,” said Bernard Armstrong, CEO of Cedar Pacific.
“We are passionate about creating positive investment opportunities with responsible social and environmental factors. The recent reform of MIT will go far to encourage investment into the growth of a sector that can respond to our housing shortage.”
Cedar Pacific has appointed Savills for the fundraising.
Conal Newland, Head of Operational Capital Markets, Savills Australia and New Zealand, said the feasibility of new development projects in the sector were experiencing challenges with the current interest rate environment and the recent increases in construction costs.
“The structural undersupply of purpose-built residential assets in Australia and New Zealand looks set to continue into the medium term given lead in times to deliver new projects. Taking into consideration these obstacles, we expect strong demand for this opportunity,” Newland said.
Joe Guilfoyle, Co-Head of Savills Capital Advisors, said the build to rent sector, whilst relatively new in Australia and New Zealand, was firmly established in UK and Europe.
“Due to similarities between these markets we anticipate strong interest from institutional investors both in Australia but also internationally. We anticipate attractive risk adjusted returns in the BTR sector in Australasia due to forecast rental growth as the market matures over the next few years,” Guilfoyle said.
Australia’s national residential vacancy rate remains at its lowest point on record in March 2023, at 0.8%, while available rental inventory in Auckland is at its lowest in five years.
Continued population growth (heavily driven by increasing immigration) is underpinned by demand for housing, with Melbourne, Brisbane, Sydney, Canberra and Auckland in particular expected to grow 1.2-2.2% p.a. to 2029, outpacing forecast growth in major cities in competing developed economies.
The consistent GDP growth, coupled with low housing affordability is anticipated to drive demand for professionally managed rental options.
Cedar Pacific manages approximately AUS$2.5bn over 18 assets totalling more than 10,000 beds across Australia and New Zealand, with an additional four assets in development. BTR is a natural expansion for Cedar Pacific in the living sector.
Essence Communities, a subsidiary of UniLodge, the region’s largest residential community manager, will operate the completed BTR projects under a white label agreement.
Cedar Pacific, the Brisbane based fund manager established by Pamoja Capital in 2015, has a strong track record of developing and managing purpose-built residential rental assets, primarily in the student accommodation (PBSA) sector.
Cedar Pacific has partnered with McConnell Property for the development opportunities in New Zealand.