The Clean Energy Finance Corporation has thrown its weight behind Australia’s first build-to-rent property fund, with a $50 million cornerstone investment in a $1 billion residential portfolio being developed and managed by ASX-listed diversified group, Mirvac.
The deal gives the CEFC a 30 per cent interest in the investment platform, called the Australian Build-to-Rent Club (ABTRC), whose seed asset will be Mirvac’s new 258-apartment building, Indigo, at its Pavilions project in Sydney’s Olympic Park.
The Club – as well as addressing issues of housing affordability and rental availability in Australia’s cities – will use cutting edge clean energy and energy efficiency technologies to offer renters lower-cost living, with a smaller carbon footprint.
For its part, the CEFC finance will support the use of a range of initiatives including on-site solar PV, energy display and monitoring systems, high-efficiency LED lighting, energy efficient appliances and windows, and passive solar design.
Combined, the initiatives are expected to cut energy use and greenhouse gas emissions by up to 40 per cent compared with what would be achieved under the minimum standards of the National Construction Code.
The move taps into a broader shift, by industry and governments, to address the problem of how to extend the benefits of energy efficiency and self generation to renters and residents of apartment buildings and other shared accommodation.
That effort has given rise to a number of innovative start-ups – SunTenants, Allume Energy, Enova, and Power Ledger, to name a few – while governments have also stepped up to address the issue, with a particular focus on extending access to solar and other energy saving technologies to lower income households.
CEFC CEO Ian Learmonth said the investment in the ABTRC was a way to offer tenants in Australia an immediate way to lower energy costs, while also tackling greenhouse gas emissions in Australia’s growing rental housing portfolio.
“With almost one third of Australians now in the long-term residential rental market, it’s critical that developers and owners incorporate innovative sustainable design measures from the early planning stage,” Learmonth said.
“It’s about delivering energy efficient buildings that have long-term environmental benefits.
“We see this as a win for tenants, a win for Mirvac, a win for ABTRC investors and a win for the environment. We look forward to seeing this approach to sustainability extended across other residential developments.”
Already big in the US and Europe, the build-to-rent market is just getting started in Australia, in response to increasing demand for good quality and long tenure inner city rental accommodation – particularly from the nation’s “millennials”, aged between 16 and 35.
Mirvac, which has been gearing up for its launch into BTR for some years now, is initially targeting a portfolio of five to six residential projects, mainly in Sydney and Melbourne. The Indigo project – which offers a mix of one, two and three bedroom apartments – is scheduled to be finished by mid-2021.
For investors, build-to-rent represents a new asset class for Australia – part of the so-called long-hold sector that, until now, has been sitting in the too hard basket.
“Mirvac really are convinced that the way that Australians approach housing is changing,” Learmonth said in an interview with One Step on Tuesday.
“And that means that there is now an opportunity for investors in the BTR market.”
According to Mirvac CEO Susan Lloyd-Hurwitz, attitudes to renting are changing, and becoming a lifestyle choice for a much wider group of people.
“Build-to-rent makes good business sense for Mirvac, by providing us with a new asset class and a secure revenue stream. It also provides us with a new and growing customer base,” she said.
“(It’s) an emerging sector where we can leverage our significant expertise in residential development and our asset management capabilities. It is very pleasing to have the CEFC on board.”
Mirvac hopes to attract large institutional investors such as super funds, as well as overseas capital. Securing the CEFC as a cornerstone investor, to help pave the way forward, is a pretty good start.
“The property initiatives Mirvac agreed to… translate to a reduction of power bills for tenants,” Learmonth adds. “Tenants don’t usually have that sort of flexibility. This is a deliberate attempt to build very high spec, energy efficient property, targeting renters.”
CEFC Property Sector lead Chris Wade said the green bank hoped to use its influence in the ABTRC to help set the standard for commercially achievable sustainability standards in residential apartments in the build-to-rent sector and beyond.
“Through this investment, we’ll also be supporting Mirvac as it works with tenants in the ABTRC portfolio to help them understand and reduce their energy consumption.”
This is not the first Mirvac project that the CEFC has invested in. In March, it committed up to $90 million in debt finance towards the property developer’s plan to embed a range of clean energy measures as part of the base build in three new residential communities.
The communities, planned for development in Sydney and Brisbane, will include more than 300 family homes of three and four bedrooms, each with built-in solar and battery storage systems, as well as high-grade insulation, LED lighting and energy efficient appliances.
The CEFC has also recently backed Australian Prime Property Fund Commercial (APPF Commercial) – a leading commercial property fund managed by Lendlease that is developing a solar powered commercial precinct in the Melbourne CBD as part of a portfolio of sustainable development projects.