Blackstone, one of the largest private equity firms in the world, is set to bolster its investment in the fledgling build-to-rent sector in Australia, revealing it has a second project in Melbourne in the works.
Kathleen McCarthy, global co-head of Blackstone Real Estate which has $US157 billion ($230 billion) of assets under management, told The Australian Financial Review during a trip to Australia this week that in just about every market Blackstone invested in the demand for high quality, institutionally managed rental housing was growing.
“Elsewhere in the world, we have found that we very successfully can operate housing and can partner with great groups that do that as well … and we would say there’s no reason for Australia to look really any different necessarily, other than historically it hasn’t existed in the same way,” Ms McCarthy said.
While there were still some structural impediments across different government levels discouraging investment in the sector, Blackstone’s Australian head of real estate, Chris Tynan, was hopeful the current property market could provide the ideal conditions for build-to-rent to take off.
“We are seeing from a market point of view that probably a gap in those pre-sales on the investor side of things just might create a window for corporates and other forms of capital to step in and correct or at least bolster the supply side issue,” Mr Tynan said.
“We feel like, because we operate hundreds of thousands of dwellings around the world, that we can hopefully bring best practice to Australia.”
Blackstone, which has an $11 billion portfolio in Australia, remained quiet on the details, but said it was “well progressed” on its second build-to-rent project in Australia, which will be in Melbourne and a similar size to its first project, a mixed-use development in Caulfield with plans for 827 homes.
Ms McCarthy said any of the group’s investments in Australia, including rental housing, warehouses and offices in innovation cities, were all “themes that flow back to our global perspective of where we want to put our capital.”
A lag in market trends and volatility meant Blackstone had been applying the lessons learnt in Europe and the United States to the Australian market, such as gravitating towards warehouses and selling down its retail assets bought over the past five years.
“There’s nuances by market, but we’re all kind of together on the same arc of what’s happening, which is that e-commerce penetration rates are high, but are also growing at pretty high rates. And Australia we would say is actually just earlier in its evolution towards e-commerce.”
When it came to its Australian retail assets, Ms McCarthy said Blackstone had done a lot of work investing in those properties but the business plan had played out and it was time to exit.
“They would be good for someone who’s looking to generate the cash flow over a long period of time, but they’re no longer the right home in our opportunistic vehicles.”
Ms McCarthy said in the current low interest rate, low-yield environment there was plenty of cash floating around creating heightened competition among investors.
“The fact that values feel full in a lot of parts of the world and in a lot of asset classes is certainly a headwind at the moment.”
“But I’m glad to be us … We actually love when there’s opportunities to take on size and complexity because it just reduces the amount of competition and so in any environment, but particular environments like this, we are leaning on all of those advantages.”
Ms McCarthy pointed to the recent acquisition of three Sydney office towers for $1.5 billion from Scentre Group as well as Blackstone’s $US18.7 billion purchase of a portfolio of 17 million warehouses in the United States from Singapore-based logistics provider GLP, billed as the largest private real estate transaction globally.
When it came to offices, Ms McCarthy said Blackstone was being “extremely selective” about where it was investing, including in Australia, and tended to gravitate its activity towards Sydney.
Keep up with Commercial Real Estate news.