Asset owners and fund managers are becoming increasingly eager to invest into multi-family housing, particularly in Australia and US, to take advantage of growing numbers of middle class people unwilling or unable to buy their own residential properties.
Aware Super is one. The Australian superannuation fund intends to particularly focus on multi-family housing for key workers, retirees and overseas serviced apartments. And it is seeing rival investors also raising their interest in the sub-category of real estate assets.
Alek Misev, portfolio manager for property at Aware Super in Sydney, told AsianInvestor the pension fund would concentrate on build-to-rent multi-family apartment complexes that provide income via multiple rentable units
“In Australia there is a younger demographic that doesn’t want or can’t [afford] to buy a home. We’re seeing a lot of demand from those who prefer to rent in a good quality building at a decent rent,” he said.
Mary Power, senior consultant for property at Jana Investment Advisors in Melbourne, noted that niche sectors like multi-family are increasingly popular with Australian investors, especially super funds, both domestically and overseas.
She said a few years ago such niche allocations would typically comprise just 1% of total real estate allocations for large Australian super funds, but today that was closer to 5%.
Power expects this to reach around 10% over the next few years as growing funds sought further sector diversification, with the allocations funded by sales of retail and office assets, as well as new inflows.
“Multi-family is driven by demographic factors rather than the economic cycle, providing more diversification in the event of an economic downturn,” she said, adding that smaller funds are more likely to use pooled funds to enter this sector.
Ruban Kaneshamoorthy, Australia head of real estate investing at Brookfield Asset Management in Sydney, told AsianInvestor there was growing investor interest in the sector in Australia.
“[This is] due to the potential scale for capital deployment, diversity and perceived stability of the cash flows,” he said.
While Australia’s multi-family sector was still in its infancy, with the majority of assets still being built, he said government policy was supportive of the sector’s future growth.
“Australia’s declining rates of home ownership, due to high residential prices and changing preferences of the younger generation, means that the multi-family sector has a role to play in the housing mix for Australia.”
Elsewhere in Asia, investors' views of the opportunities are more mixed.
Kelvin Wong, head of China real estate, at Schroders Capital, told AsiaInvestor he is looking closely at the multi-family sector in Shanghai, particularly those run by domestic operators with a long track record.
Wong said that with the fall in foreign visitors, the sector has been buoyed by domestic users and business travellers who now rent for months rather than weeks to mitigate the impact of quarantine requirements.
He believes this trend could return the sector to pre-pandemic occupancy levels.
Stuart Mercier, head of Asia at Brookfield Asset Management, pointed to the appeal of the sector given the shortage of housing for Asia’s expanding middle class.
“Asia [has] excellent urban economic growth profiles and a shortage of high-quality housing, particularly purpose built,” he said, adding that location and strong operational capabilities were key drivers dictating the success of a project and the willingness of tenants to pay higher rents.
“Multi-family is an asset class that has traditionally provided strong income growth with lower volatility than some other real estate asset classes.”
However, Misek believed there are limited opportunities to invest in multi-family and retirement property in Asia. While he hopes to begin allocations in the next two to three years, this would depend on what investment opportunities presented themselves.
“In five years, we would like to have a presence in Asia comparable to that in Europe or the US in our preferred sectors, including multi-family,” he said.
\Misek said the fund’s first investments could be in developed Asian markets, namely Japan, Singapore and South Korea. “That might make more sense because we know how these markets work,” he said, adding that no decisions about future strategy had yet been taken.
SEEKING US OPPORTUNITIES
Joseph Lee, co-chief executive officer of IGIS in Seoul, told AsianInvestor that the fund is also close to completing several multi-family purchases in the US.
“We are currently reviewing multiple multi-family transactions in US and expect to close some of them within next few months.”
Power said that many Australian institutional investors favour the US, where the multi-family sector is larger.
Aware Super has also been active in the sector in the US. In 2018, Lendlease and Aware Super, established a new $2 billion investment partnership to develop and hold multifamily assets in US gateway cities.
In January 2021, the two announced a $780m mixed-use development deal in Los Angeles.