But what guarantees cashflow is turnover at the end of terms,” Coughlan says. This means operators should strive to maintain occupancy rates of 95 per cent, with each resident staying between 10 to12 years. “Modelling only works if these properties are in demand – not 50 per cent occupied.” David Bryant, head of AUI, reinforces this view: “Retirement villages are like hotels and airplanes: you need them to be full, and you don’t want vacancies or weak pricing.” The manager is targeting villages of about 100 units in metropolitan areas, or those in connecting local strips, such as the Gold Coast and the Central Coast of NSW. Previous investors, some of them investment banks, have gone wrong by assuming unrealistically high growth rates, Bryant says. “If we there is a reservation, it’s the people who’ve gone before us and paid too much, geared too much and didn’t understand the space and got it wrong.”

Retirement + f unds Superannuation funds are eyeing this market as well. Sam Sicilia, CIO at HOSTPLUS, says retirement villages may soon become a bigger part of the fund’s property portfolio. HOSTPLUS is a pioneer of social infrastructure investment: it’s the world’s largest operator of campus living with 48,000 beds Australia, UK, the US and NZ. That said, Sicilia says the campus accommodation model is not suitable for retirement villages, because the income from villages is less consistent relative to campus accommodation. Retirement villages are generally low, single-digit yielding investments, and their irregular income streams can only support low levels of debt. In contrast, aged care facilities, which are paid for through pensions and also receive government funding, generate consistent income. They are less risky, and earn smaller average returns. Sicilia is adamant that funds must focus on generating investment returns to provide for their members’ retirement, but “along the way, the investment of money inevitably produces secondary benefits: for example, it can lead to the construction of much-needed infrastructure,” he says.

Retirement villages are among the investment opportunities that Australia’s aging population will provide. As HOSTPLUS approaches the sector, the fund is “more than happy to go with other super funds because our timehorizon is similar”, Sicilia says. The collective approach also reduces due diligence costs and fees, and affords a collective of likeminded superannuation funds the ability to control term sheets and, ultimately, investments, he says. For instance, Industry Superannuation Property Trust (ISPT), a direct property manager owned by industry super funds, is currently drawing on pooled capital from some of its owner-investors – including HOSTPLUS – to run an “investigative project” to find a superior model the for investing in retirement villages. Whether this project becomes the formative work of a future co-investment strategy led by ISPT depends on the attractiveness of the opportunities the manager finds. “Sometimes you get to pay for the initial part of a project in order for it to be attractive to smaller investors, who can put in $5–10 million, but not $100 million,” Sicilia says.

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