As one of the early players in the build-to-rent scene in Australia, Sentinel has expansion on their mind. With a 27,500-unit portfolio globally, Sentinel President Michael Streicker sees a bright future for the asset class.
Build-to-rent (BTR) is not a new concept for Michael Streicker, the New York-based President of Sentinel Real Estate Corporation, a major real estate investment management and accommodation company in the US.
Around two decades ago it began exploring opportunities to raise capital in Australia and invest it in the delivery and management of multifamily properties, as it’s known in the US.
Although Sentinel’s global rental apartment portfolio comprises over 27,500 units, the potential for growth in the Australian market is so significant that Mr Streicker has increased his visit frequency to the region.
“Everyone would sort of look at us as a curiosity,” Mr Streicker said regarding some conversations he would have with Australian based firms 10-20 years ago.
Curiosity no more.
Over the past decade, Sentinel has become a key institutional player in Australia’s emerging BTR sector, with operational facilities in Subiaco, Perth and a new development scheduled to open later this year in West Melbourne.
These two facilities consist of more than 340 units valued at around $300 million. In addition, Sentinel has purchased sites at Scarborough, Perth; Robina, Gold Coast; Bowden, Adelaide, and is currently conducting due diligence on a further location, with roughly 1,600 apartments in total under various stages of development or operation.
Sentinel has also recently launched a property management platform called Kinleaf for its expanding Australian portfolio.
Initially, Sentinel expanded its local market presence via a fund supported by British institutional investor Hermes Real Estate. Last year, the company secured a commitment from Dutch pension fund manager PGGM to establish a portfolio worth up to $1.5 billion.
Mr Streicker said the acceptance of BTR in Australia has grown tremendously since first looked upon as a curiosity all those years ago.
“It’s still a very nascent industry. But again, we started looking at our first sites in Australia in 2012,” he said.
“Our sense is that there’s a tremendous amount that’s happened in Australia in a relatively short period of time. There is so much more interest from so many more people today than there was even 12 months ago, 24 months ago, 36 months ago.
“From our perspective, it is really exciting to see everything going on in Australia. We think there’s an enormous opportunity for the property type.”
EY estimates that the current size of the build-to-rent sector in Australia is $16.87 billion (just 0.2 per cent of the total value of the residential housing sector) with only 11 operating build-to-rent projects, and another 72 projects in the pipeline. The report suggests on conservative estimates, if the sector grew to just 3 per cent of Australia’s residential stock, it could be worth $290 billion.
In the US there are more than 20 million build-to-rent housing units, representing 12 per cent of the country’s total housing stock. In the UK, the build-to-rent sector has grown exponentially in recent years from 47,000 units in 2016 to over 240,000 in 2022.
Mr Streicker believes decisions made by governments five to ten years ago, which limited foreign capital into the BTR space, are starting to be felt in the current housing crisis.
He said discussions around lowering the managed investment trust withholding tax to be level with other commercial assets are indicating that people are thoughtful about where capital is coming from and what motivates international investors.
A recent study commissioned by the Property Council of Australia showed levelling the investment playing field for BTR homes could deliver 150,000 new apartments and help address Australia’s stark housing affordability challenges.
According to high-level financial modelling undertaken as part of the study, if the managed investment trust withholding tax was halved to 15 per cent, in line with other property asset classes, three times as many BTR projects would go ahead compared to a business-as-usual approach. The Australian Government would also receive a 30 per cent increase in tax receipts over a 10-year period.
Global experience
Environmental sustainability is a key focus for Sentinel, and the company’s Element 27 community has been recognized as the first Carbon Neutral Certified apartment building in Australia under the Climate Active Carbon Neutral Standard for Buildings.
Mr Streicker said he is impressed by the focus on environmental sustainability in Australia.
“It is absolutely, I’ll say, in front of how we view things in the US,” he said.
Over its more than 50-year history of investing in multifamily properties, Sentinel has acquired and managed over 154,000 apartment units valued at $US17.1 billion, operating in 93 markets across the US.
While this gives them plenty of experience in the sector, don’t expect to see a model that works in New York planted on Australian shores.
“What we are trying to do is bring the things that work from the US to Australia, but also recognize that everything that works in the US will not necessarily work in Australia, and make sure that we have local input,” Mr Streicker said.
“Each of these assets has to be uniquely tailored for the environment that it’s in.”