The Ed, Mt Eden: a Quest and build to rent apartments. Photo / supplied
Two commercial builders have established a new build-to-rent business to own and manage three Auckland apartment blocks expected to be worth around $210 million.
The new, unlisted relatively low-key Resident Properties has only now sought publicity after being formed three years ago.
A director, Greg Reidy, said today he expects the first three apartment buildings to have a total value of around $210m.
Greg and Helen Reidy's Reidy & Co and Kim Barrett's Haydn & Rollett launched Resident. The Reidy's own Reidy & Co and Barrett owns 55 per cent of Haydn & Rollett.
The two builders add heft to the emerging build-to-rent sector. Reidy is also a director of $1.4 billion listed landlord Property For Industry and has more than 25 years of experience in construction, development and finance.
Reidy and Barrett now see potential.
"We are on track to grow our portfolio of properties in prime locations across Auckland," Reidy said today of Resident.
Barrett: "This is a way of bringing a long-term asset ownership approach into the residential sector. We try not to overshadow the new business with the two existing."
Resident's first block is a new Mt Eden apartment/hotel building, built by the two building businesses.
In its second venture, Resident plans to buy a nearly-finished Grey Lynn block by Ockham Residential, Reidy said.
In the third move, it plans a new apartment block near the CBD, again built by Reidy & Co and Haydn & Rollett.
The new business has identified three other areas of the city where the relatively new formula could work. In what it terms "future precincts", Newmarket, Grey Lynn and the North Shore are listed as the next possible areas where it might develop or buy.
Resident was only incorporated in 2019 so is a new venture fronted for publicity purposes by the experienced multimillionaire Reidy who has a history in commercial, tourism and industrial developments and finance. Barrett prefers to stay lower-key.
The new business has so many shareholders that it has filed an extensive shareholder list with the Companies Office, indicating many see opportunity.
Reidy: "Shares have been issued to a range of wholesale investors. We raised $25m in 2019 to build The Ed and $12m at the end of last year to buy The Nix. We'll need to raise capital again this year to build the third one. To date, capital has been raised via previous connections through our own connections."
Management via Reidy & Co and Haydn & Rollett own about 25 per cent of Resident. Directors own more than 50 per cent, he said.
Investors are expecting a total return over the long term of about 12 per cent annually. That includes valuation gains, he said.
The aim is to erect new medium-density blocks with compact, permanently-rented units, never sold. Whether Ockham or Resident builds the blocks, Resident wants to own and manage the units within, usually one and two-bedroom apartments.
A two-bedroom two-bathroom unit in The Ed is being advertised for $795/week.
Question: is it a reflection on the state of our housing market and the affordability crisis that apartments are now rising specifically built to rent, not sell? That's a relatively new phenomenon in NZ real estate.
Reidy says: "BTR, which is extensive in Europe and the United States, will continue to gain momentum in New Zealand due to housing affordability and its attractive benefits for both tenants and investors. While BTR doesn't replace mum and dad investor landlords, it adds a new dimension to the property market which will result in a more sophisticated rental sector."
Resident has arisen to answer what it sees as a call. It sees an opportunity to provide places not far from the CBD for people who cannot afford to own. Sure, those people might well buy at some stage, but renting is such big business now that it commands its own development sector - a burgeoning phenomenon.
To put it bluntly, businesses are creating new builds for lifetime tenants. These are people who will never - unlike Reidy or Barrett - make a fortune from property.
The roof over their heads will be someone else's.
Another question: is BTR good because a more corporate professional owner/manager can give tenants a better deal than the usual mum and dad landlords?
That's certainly the way BTR specialists like Resident pitch themselves.
New Zealand has 1.8 million residences for 5.1 million people. Many of us will never call our home our own. Stats NZ says home ownership peaked in the 1990s at 74 per cent and by 2018 had fallen to 65 per cent of households, the lowest rate since 1951.
Home ownership rates have fallen for all age groups since the early 1990s, but especially for those in their 20s and 30s.
In 1991, 61 per cent of people aged 25 to 29 years lived in an owner-occupied home. By 2018, this had dropped to 44 per cent. Similarly, for those aged in their late 30s, the rate dropped from 79 per cent in 1991 to 59 per cent in 2018.
Building consents for nearly 50,000 residences are being issued annually and the Government and National have agreed to intensify major urban areas. By this August tier-one councils will be forced to allow three-level homes on most sites, one metre from boundaries without resource consents being required.
Resident says it is "making life easy, purpose-built, serviced living, onsite maintenance, co-working spaces, 24-hour security, Fisher & Paykel appliances, parcel lockers for deliveries".
Whichever way you see it, BTR is the latest buzzword in top-end-of-town real estate circles right now although Barrett says the two builders latched on some years before the company was incorporated.
The Property Council wheels up big-time Australian experts at its conferences.
Listed behemoth Kiwi Property has started developing 540 new build-to-rent apartments in Mt Wellington and New Lynn in schemes worth $442 million.
Apart from the wildly successful PFI which is flourishing during the pandemic with its many warehouses and storage centres, Reidy's Reidy & Co is an established builder, developer, investor and manager. It was previously called McDougall Reidy. Projects completed, sometimes in JVs, include Mt Eden's Botanica apartments, developing the Carlaw Park precinct, new-builds at Rosebank, Oteha Valley, Albany and Parnell.
Reidy & Co also declares itself as an owner of Area Management, fund manager of Resident.
Haydn & Rollett and Reidy & Co are nearly finished building the $280m 10-level 28,000sq m 203-unit student apartment block at 28 Stanley St, Parnell. That project isn't connected to Resident.
The block is for University of Auckland students and the building will be owned by Ergon Properties.
Haydn & Rollett and Reidy & Co also built the new $62.8m 36-unit The Ed, 34 Edwin St, Mt Eden. That also has the 52-room Quest Mount Eden on its lower levels.
Across town at 6 Nixon St, Grey Lynn, Resident has bought Ockham's nearly-finished block: the seven-level 32-unit project The Nix. Resident paid Ockham $23.4m in an unconditional purchase and Reidy said he hoped that block would be finished by April. So, not much time.
Alan McMahon, Colliers' national strategic advisory director, said the Ockham-Resident transaction was the first time a BTR building or asset had been sold as an investment.
Vanessa Irvine, Ockham Group chief financial officer, said the two businesses shared a similar philosophy.
At 65 Upper Queen St, Resident plans a 127-unit one and two-bedroom apartment block. Haydn & Rollett and Reidy & Co will build it.
Reidy and Barrett's fellow directors at the new business are Gerald Bethell and Bailey Baker.
Reidy's connections to the listed sector are extensive with McDougall Reidy previously managing Property for Industry until internalisation of that listed company.
When PFI was internalised last decade, its managers were reported to reap a $42m payday.
Reidy & Co was instrumental in the formation of Direct Property in 2003, which merged with PFI in 2013. The Herald has also reported how McDougall Reidy & Co was previously connected to Willis Bond until a split.
PFI said Reidy was last re-elected last May: "Greg has a background in property investment, funds management and development with more than 25 years experience in the management, ownership and development of industrial, commercial and retail property," PFI says.
Now, build-to-rent can be added to his CV.
Industrial projects dominate new supply, the study found, comprising 65% of new stock.