Qualitas has launched Australia’s first dedicated built-to-rent debt fund in a bid to tap into the country’s emerging multifamily sector.
The Melbourne-based manager plans to raise A$1 billion ($659 million; €607million) from institutional investors for its Qualitas Build-to-Rent Impact Fund.
The vehicle is expected to provide financing to build-to-rent projects in major cities in Australia via senior loans to developers.
These are expected to generate around a 6 percent return per annum for the fund’s investors.
Fundraising for the vehicle has so far reached A$125 million thanks to a cornerstone investment from the Clean Energy Finance Corporation, an Australian government-owned green bank.
A successful fundraising would see Qualitas become the first Australian manager to plug a financing gap in the country’s nascent multifamily market, PERE heard. Traditional lenders, such as banks are understood not to have yet engaged developers in the sector.
The build-to-rent sector in Australia is taking off and it is expected to see more than 1000 units of completions in 2020, the highest number of project completions to date, according to a CBRE report. The report anticipates there will be a further 800 units due to finish in 2021.
Tim Johansen, managing director and head of global capital at Qualitas, said funds can offer more attractive capital than the banks for developers at the build stage because they are able to provide longer lines of financing and at higher gearing levels.
“These are important features as it means the developer can use their scarce equity more efficiently, and the longer term of the loans will provide the developer with ample time to stabilize the operations and income of the building,” explained Johansen. He added how the vehicle could offer loans as long as seven years making them more attractive to borrowers. Banks in Australia, meanwhile, generally offer shorter tenures, about three to five years.
Funds, he said, also are able to lend to a 70 percent loan-to-value ratio, a higher ratio than allowed for banks.
The relationship between the debt and the build-to-rent markets is still at a nascent stage, according to Matthew Duncan, head of debt advisory at JLL Australia. He pointed out he has only seen a couple of debt financing projects for BTR developments underway.
However, as such, developments are expected to attract large capital commitments, Johansen said. Just a handful of transactions should see sizeable loan volumes, he added. He said Qualitas has identified five to six projects for its fund to provide financing, potentially requiring up to A$750 million of loans.
Despite its infancy in Australia, Duncan expected to see further opportunities for lenders in the space as deal volume increases. “Build-to-rent has the potential to become a $50 billion to $100 billion investment class in Australia. The momentum will be primarily investor-driven,” he said.
“The bottom line is that major investors need diversified investment opportunities beyond office, industrial, and retail in Australia. As it stands, there exists no other emerging sector that genuinely offers investors the scale they need other than build-to-rent,” said Duncan.