Investment management company PGIM is planning to create a $750 million portfolio of co-living facilities across Sydney and Brisbane as a part of its residential-for-rent strategy.
According to the AFR, the New York-listed company has secured seed assets in Brisbane’s Fortitude Valley and in Sydney’s Parramatta, which will be turned into 300 smaller-scale apartments, worth $300 million.
The $2 trillion asset manager is aiming to expand into more facilities with a portfolio of between 1250 and 1500 apartments.
The co-living format is a subset of build-to-rent, which typically includes smaller apartments with more emphasis on communal spaces such as co-working, libraries, cinemas and event spaces.
The buildings will also be constructed using modular technology in partnership with the founders of modular hotel chain Tribe.
PGIM Real Estate’s managing director and head of Australia, Steve Bulloch, said modular building methods will mean it is both affordable and high quality.
“The reason this stacks up financially for us is that we’re doing smaller and more apartments per floor that, we think, will work in those markets,“ Mr Bulloch told the AFR.
“And because of the modular process, we’re building it a bit cheaper and quicker.”
PGIM has a residential portfolio across the Asia Pacific of about $US1 billion, but could not make build-to-rent in Australia work in its traditional form, which typically involves higher rents for its residents who enjoy club-like amenities.
“We’ve very carefully selected this as our entry point because we think this works for us,” Mr Bulloch said.
“It’s easy to talk about the fact that there’s all these tailwinds in terms of demand and supply.
“They are very attractive tailwinds in terms of rent growth.
He said PGIM has struggled to get the returns in the more traditional BTR model to stack up.
“I’d say partly that’s because we’re also foreign,” he said.
“It’s a bit trickier for a foreigner with the tax overlays.”
PGIM is targeting an average net yield on cost of 6.5 per cent from the seed assets.
The federal government has also pledged to halve to 15 per cent the withholding tax rate applied to foreign investors in managed investment trusts that hold rental housing, bringing it in line with other commercial property investments.
“The proposal is positive and quite frankly, we’re expecting that to be a benefit and to come through, Mr Bulloch said.
“Obviously, it’s frustrating, I think for everyone at the moment, that the details are not clear.
“I’d certainly encourage the government to provide the next layer lower level of detail as to how this works.”