Changing demographics are driving enormous opportunities in build-to-rent real estate, a sector that is well developed in the US but only in its early stages in Australia, real-estate experts tip.
The ageing population and younger generations’ reduced focus on home ownership are driving enormous growth in the rental property market in the US, and skilled operators can exploit widespread inefficiencies to increase returns, says Al Rabil, managing partner and chief executive of Kayne Anderson Real Estate Advisors, which invests in niche real-estate sectors and has US$4 billion in assets under management.
Build-to-rent refers to apartments that are built to be held and rented, rather than sold to owner-occupiers. Speaking at the 2018 Conexus Financial Real Estate and Private Markets Conference, held in Melbourne last month, Rabil said Kayne Anderson began investing in build-to-rent student housing when the company founded its real estate private equity platform in 2007. However, he sees much bigger opportunities now in applying the model to the healthcare areas of senior housing and medical offices.
“I would argue on the healthcare real estate side…We are in the early stages of what I think will be a very long run,” Rabil told a panel discussion chaired by Lizzie Smith, senior investment analyst at Willis Towers Watson.
Rabil pointed to a range of strong demographic drivers. In the US, about 11,000 Americans will turn 65 every day for the next 22 years. The 65- to 74-year-old demographic is forming households faster than any other age group in the US. And 85- to 100-year-olds make up the fastest-growing segment of the US population. Acceptance and use of the senior housing sector is growing quickly, Rabil said.
The similar “medical office” sector, he explained, is not well understood outside of the US, but it has developed in response to new demands from a changing healthcare delivery model.
“Everything that is not acute care has been pushed outside of a hospital,” Rabil said. “So, think about basically anything you can schedule – a doctor visit, surgery – all of that is outside of a hospital in the US today, which has created tremendous demand.”
Kayne Anderson pivoted out of student accommodation and into healthcare in 2013 because the medical office and senior housing sectors were each estimated to be about US$1.5 trillion in value, he said, compared with the $300 billion student accommodation sector, which was experiencing a flood of demand from institutional investors.
There are operational efficiencies in healthcare that good operators can exploit, Rabil said. With aged care, Kayne Anderson typically buys assets that are 80 per cent occupied in high-quality markets. Bringing occupancy higher requires skilled operators who can manage the industry’s yearly turnover rate of 35 per cent to 40 per cent.
“In our view, there are only 10 to 12 highly qualified operators in a US$1.5 trillion sector,” Rabil said. “That arbitrage will lessen over time because you will have more high-quality operators enter the aged-care space.”
Brightlight Impact Advisory – the investment consulting division of $1 billion local superannuation fund Christian Super − is looking into how it might fund the development of build-to-rent assets.
Simba Marekera, Brightlight’s chief research officer, said that in addition to being a sound area for investment, the fund hopes such developments will help address housing affordability concerns in Australia by providing affordable rental accommodation.
Marekera admitted, however, that it’s challenging to pull together deals that stack up.
“The issue, of course, is that the yields are a little unattractive there and the incentives provided by the government are geared towards owner-occupiers and individual investors but not necessarily institutional investors,” Marekera said.
