Cedar Pacific to tap investors for build-to-rent fund

Student accommodation developer and investor Cedar Pacific is expanding into the burgeoning build-to-rent sector as it looks to take advantage of a looming shortage of rental housing in the next three to four years.

Chief executive Bernie Armstrong told The Australian Financial Review the private equity-backed group, which manages $1.5 billion of assets, planned to raise a “significant” build-to-rent fund in the first quarter of 2021 and was negotiating on a several development sites.

“We will target about $500 million for the first fund, spread over Australia and NZ,” Mr Armstrong said.

“As we snap back to a more normal economy with domestic growth and immigration returning, we run the risk that in three to four years we will, have a housing shortage..

“Build-to-rent helps with that. We can bring capital in and put it to work to make sure we have enough housing stock.”

Brisbane-based Cedar Pacific raised $500 million for its second student accommodation fund in February 2019, which was predominantly supported by institutional investors.

The developer, backed by Luxembourg-based private equity firm Pamoja Capital (which also majority owns its operating partner, UniLodge), is again sounding out institutional investors for a proposed build-to-rent fund as global asset managers look beyond traditional asset classes like retail and office.

Mr Armstrong said build-to-rent fit in well with Cedar Pacific’s “DNA” based around curating residential communities.

“We understand how to make a community successful and how to get capital interested.”

While further tax reform would be welcomed – Mr Armstrong believes the withholding tax rate of 30 per cent applied to income earned by offshore investors in managed investment trusts is discouraging investment and should be halved for BTR projects – he said Victoria and NSW were “leading the way” with their latest tax reforms to encourage growth of the sector.

Rahul Bharara, head of real estate coverage at Credit Suisse (which acted as exclusive placement agent for Cedar Pacific’s second student accommodation fund) said there was a lack of alternative property exposure for investors.

“BTR is a very well seasoned asset class and has provided solid through cycle returns to investors,” Mr Bharara said.

“Previously, relative returns (against other sectors) for BTR did not work in Australia, however, that dynamic has changed, with returns across most assets compressing significantly.

“In addition, you have high quality players like Mirvac, Investa and Cedar Pacific leading the charge in what could be a very significant sector,” he said.

While it has its eye on BTR, Cedar Pacific is powering on with its student accommodation business, amid expectations the sector will start recovering strongly from mid-2021 and have a bumper 2022.

“Our portfolio is more bullet proof [than others]. We have long term relationships with universities which have leases on some of our buildings that underwrite long term occupancy,” Mr Armstrong said.

Next year Cedar Pacific will open one of the tallest purpose-built student accommodation buildings in the southern hemisphere at 480 Elizabeth Street in the Melbourne CBD. The 52-storey building overlooking Queen Victoria Market will offer more than 900 beds. Another student tower will open in Auckland.

Mr Armstrong said the group was in talks to acquire a second Sydney site after taking control of an $80 million “super site” in Kensington, close to the University of NSW, earlier this year.