[+] Local Upstart Lays Out Ambitious Build-to-Rent Plans

Macquarie Group-backed build-to-rent platform Local is embarking on a rapid expansion program, saying they want 5000 apartments either completed or in the pipeline by 2025. That represents a five-fold increase for the new kids on the block, who are aiming for two acquisitions a year to reach those targets. Matt Berg, one of Local’s two chief executives, admits the target is an ambitious one. “To be honest, there is a small window of time,” he says. “The fundamentals of the rental market are such that I think there's going to be tremendous growth. Beyond what your average economist is forecasting at the moment.” Berg was speaking to The Urban Developer as the platform announced it had won approval for an amended design to their recent acquisition—a $280-million development-ready, 40-storey tower in South Melbourne. Acquired from private developers Blue Earth Group, the pair will partner with Melbourne-based apartment and commercial builders Hamilton Marino to deliver the 421-unit tower in what is effectively a fund-through agreement. It’s a business model with which Local plans to continue. “Planning is really difficult at the moment, no matter what your jurisdiction and if you can pick up build-to-sell permits, particularly for large yielding build-to-sell sites that haven’t worked for whatever reason, why wouldn't you?” Berg says. ▲ Matthew Berg and Dan McLennan are joint chief executives of Local. “Why wouldn't you get your hands on these sites rather than start from scratch and spend at best 12 or 18 months in planning, or at worst end up in VCAT?” Local is currently negotiating at least three acquisitions, which Berg says are “all in the term-sheet phase.” All are in suburban Melbourne, and all are at various stages of town planning approval. “We prefer to be in the middle ring suburbs—probably between 2 and 20 kilometres outside the CBD because they tend to have a stickier tenant base there, and people who are going to put down roots and are generally less transient tenants.” Berg says all the pressure is currently on the developers’ side of the ledger. “If you’ve bought land recently and you’re also trying to build off current prices the margins are very compressed for the build-to-sell developers.” “A lot of these deals are recent purchases, so build-to-rent is probably the only solution for a very long time. It’s either us doing a deal or someone else that’s capable of doing these sorts of deals.” Local began life just a year ago when two former Grocon managers —Berg and his co-chief executive Dan McLennan—secured $500 million in funding from Macquarie Asset Management. A 500-apartment development in Melbourne’s inner west was the first project for the fledgling platform, as it sought to grab a chunk of the city’s build-to-rent market. ▲ A render of the 40-storey tower in South Melbourne Local will create as a build-to-rent property. Compared to other Australian cities, Melbourne has a bigger number of larger, scalable, permit-approved sites available , especially in the inner-city areas. But with national vacancy rates are a record low of 1.1 per cent, that Melbourne-centric view is likely to change. SQM Research says rental listings across Australian cities are also at record lows and about a third below the previous five-year average. Local says it’s interested in the Adelaide market, for example, where vacancy rates are at about 0.3 per cent and the build-to-sell pipeline is small. And they’re looking at Canberra. “We’re not just going to be in Sydney and Melbourne,” Berg said. “We’re looking at the secondary markets where we can see value.” Inner Sydney land prices have proved difficult for the build-to-rent sector, although earlier this year New South Wales introduced more changes to environmental planning policy legislation designed to further boost housing diversity and affordability. And to encourage build-to-rent development. An improvement in Australia’s net overseas migration is likely to provide a further boost. The federal government is forecasting net overseas migration will strengthen across most cities by the end of next year, and at the jobs and skills summit in September announced an increase to the permanent migration cap for the next 12 months from 160,000 to 195,000 migrants. Research by independent professional property services firm Charter Keck Cramer shows net overseas migration to be a key driver of apartment sub-markets across the country. Charter Keck Cramer says their data shows around 75 per cent of migrants landing in Australia rent before slowly moving into the home ownership market. And they favour living in apartment buildings. ▲ A render of a room in Local's planned build-to-rent in South Melbourne. Local is targeting three broad categories with its offering—essential workers, specialist disability accommodation, and women over the age of 55 as social housing tenants. “It’s the first time these women have been homeless,” Berg says. “It might be financial repression, or a divorce and not having worked for a period of time in your life to raise kids. That will be part of the percentage.” Critically, he says, they want to remain “tenure blind”, or what is described as a design principle for mixing market and subsidised housing with no external indication of the type of accommodation. “The way we want to do it is a way we think can deliver the most socially cohesive outcome,” he said. The amended design for Local’s latest development in Normanby Road, South Melbourne, seeks 24 fewer apartments. They intend to consolidate 40 dual-key units to create 20 bigger, three-bedroom homes. The ground floor has been redesigned to include more concierge space, a waiting lounge, café and wine bar, with an expanded co-working facility. And they’ll replace the roof terrace with a bigger solar energy array. “What we are doing, I think, is almost like a duty,” Berg says. “We are the only part of the market firing at the moment, so we’ve got to come up with as much as we can.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

Residential
Ralph Nicholson
Tue 01 Nov 22

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ResidentialRalph NicholsonTue 01 Nov 22

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