You’ve no doubt heard of the investment company Blackstone.
They’re a behemoth in the world of investment and finance. With more than $730 billion in assets under management, the firm is a force to be reckoned with.
They’ve got their fingers in a lot of pies, from private equity to real estate to hedge funds, and they’ve been gobbling up assets and real estate over the years at a breakneck pace.
Most recently, Blackstone has also been eyeing up the Australian land market.
From the Australian Financial Review:
‘Blackstone… will step up its investment in build-to-rent in Australia, as it looks to increase its exposure to sources of inflation-beating growth in rental income…
‘“Just about everywhere we invest and through the data — not only in our real estate portfolio but of course to our whole Blackstone ecosystem — we do see inflation metrics rolling over, coming down, which we think is a positive sign,” Ms McCarthy said.
‘But the great news for us is that we have been preparing for a higher interest rate, higher inflation environment for a very long time.’
80% of Blackstone’s portfolio of real estate investments is weighted towards assets that provide a strong cash flow. (Warehouses, rental housing, hospitality accommodation etc.)
And with news that Australia’s immigration could surge to 300,000 in 2022–23, coupled with record low vacancy rates. Blackstone wants to expand further into Australia’s build-to-rent sector.
If you’re not familiar with the concept of the build-to-rent (BTR) (rather than build-to-sell (BTS)) sector — you should be.
Over the last couple of years, BTR has been tipped as one of the biggest commercial asset hits, and its growth in the Australian market over recent years has been rapid, to say the least.
Put simply, build-to-rent is the corporatisation of the rental market.
Properties that are designed and constructed to be used exclusively for rental accommodation.
The developments are owned by large institutional landlords who manage and control the tenancies.
The model is already popular overseas.
In fact, it’s one that’s grown into a multitrillion-dollar asset class, with investors unsurprisingly leasing their developments for the highest rent possible.
For example, the US’ five largest corporate landlords own about 420,000 properties in total.
Germany’s largest landlord, Vonovia, has more than 330,000 properties alone.
Build-to-rent now accounts for one in five new homes built in England and one in four in London.
More than 170,000 build-to-rent apartments are in the planning, construction and operational phases in London, Birmingham, Manchester, and other big cities.
In Australia, the build-to-rent sector is still in its infancy — however, that’s changing fast.
By October last year, more than $3.5 billion had been raised and committed to the Australian BTR sector since January 2021 — that was forecast by Savills to exceed $4.5 billion by the end of 2022.
Put simply, BTR is ‘booming’ with more than a 70% jump in value in the past 12 months.
Governments have assisted by advantaging this sector over others.
New South Wales, Victoria, and WA are offering build-to-rent developers a 50% land tax discount.
1,238 BTR dwellings have been built or are in the pipeline for WA, compared to 3,000 in Sydney and 10,000 in Melbourne.
Melbourne has more than 50% of the national market.
Mirvac was one of the first to invest in build-to-rent, developing the LIV Indigo project in Sydney Olympic Park — consisting of 315 apartments in two towers.
It’s part of the 700 apartment-and-terrace pavilions development — developed, retained, and managed by Mirvac.
It has more facilities than you typically get in a ‘build-to-sell’ apartment complex. On-site managers, gyms, working spaces, a dining room, theatre, and children’s playroom, etc.
Mirvac let it for above-market rents, and over the past year it’s been 95% occupied.
Another, due to be completed this year, is funded by Canada’s Oxford Properties and its Australian Investa property business.
Oxford is constructing a 39-storey tower with 234 apartments as a build-to-rent at its $1 billion Sydney Metro Pitt Street over the station development.
These are not ‘affordable’ rentals — the apartments are designed to attract good yields.
Government propaganda is, of course, pushing this sector as a solution to the housing affordability crisis.
Around 31% of the population rent.
With immigration rocketing to record levels, that’s expected to rise over the next few years.
Governments are under pressure to advantage tenants with changes to rental legislation — encouraging greater security of tenancy.
In build-to-rent models, however, tenants sign up for a year and can renew leases for as long as they want.
It fits with the agenda.
They never need to buy.
Of course, it’s the landlords who are winning financially.
Evidence from overseas shows that build-to-rent landlords are good at merging with one another to monopolise the rental markets.
They are good at enlisting tenants into automated systems that work on algorithms.
Maintenance requests and rent payments in the UK, for example, can be processed through cloud-based platforms like ‘TaskEasy’ and ‘FixFlo’.
If you’re a day or so late with the rent, you risk being issued with an eviction notice with software like ‘CaseAct’ and ‘ThrowOutMyTenant’.
Property Technocracy at its best.
In the US, the rise of build-to-rent has led to the development of ‘rental-backed securities’.
This is one of the hottest products on Wall Street.
Rental-backed securities are similar to the subprime mortgage-backed securities that blew the market up into the GFC.
They bundle together streams of rental payments as collateral.
You already know where this is heading.
Tick tock on the real estate cycle clock until a peak at around 2025 (in the US) to 2026 (Australia)…
Build-to-rent is also a model encouraged by the World Economic Forum’s (WEF) ‘Great Reset’.
(The new economic agenda is planned to bring sweeping changes to the world by 2030.)
You may recall the controversial ad run by the WEF that painted their utopia of the future under the catchphrase:
‘You will own nothing, and you will be happy.’
It fits their vision for a circular economy where everything is rented/shared/loaned.
We all survive on a government UBI (Universal Basic Income given via central bank digital currency).
Giving governments even more control over their citizens.
Still, never forget — someone always owns the land!
And someone is always collecting the rent!
And right now, investors with a stake in that pie are set to benefit.
The owners of the land that build-to-rent developments are constructed on will (over time) monopolise vast tracts of the rental market.
And with this sector in the mix, it’s going to increase competition for commercial land — feeding into higher prices through to the peak of the cycle.
Based on existing projects, the number of BTR units is forecast by some to rise from 1800 in 2022 to nearly 16,000 by 2027.
Offshore institutional investment currently accounts for 57% of the funding of build-to-rent developments.
Almost two-thirds of projects announced have secured equity capital from global investors, mainly those based in North America and Europe.
Traditional lenders and non-bank lenders are allocating funds to the sector.
At the end of 2021, real estate investment firm Qualitas joined rich-lister Tim Gurner to create a $1 billion build-to-rent development fund.
Aware Super, one of Australia’s biggest funds with assets of $135 billion, is also investing heavily in offshore build-to-rent projects as well as those locally.
Over the next few years, we’ll see an increasing number of REITs exposing themselves to the build-to-rent sector.
It’s evidence that there’s a lot more money that’s going to flow into the land market before we’re at the end of this cycle.
With the future moving toward one where people will be encouraged to rent — rather than own — you need to ask yourself the question.
Do you want to be a renter or a rentier?
To the peak of this cycle, the latter demographic will be the ones that reap the financial gains.
Editor, Land Cycle Investor