More than 170 apartments developed for long-term Auckland renters

Wednesday, 9 January 2019

The biggest 'build-to-rent' apartment development, slated for Tamaki in east Auckland, is shaping up as New Zealand looks at ways to tackle its housing shortage.

New Ground Capital is planning a five-storey building of about 178 one and two-bedroom apartments which will be available on three to seven-year leases.

It is pioneering this new model in New Zealand where apartments and houses are built for long-term rental rather than for sale.

The model has taken off in Britain in recent years, is gaining traction in Australia and has been well-established in the United States for many years.

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New Ground managing director Roy Thompson said the company was the only specialist build-to-rent developer in New Zealand but other organisations were investigating it.

'We're expecting to announce a development of circa 178 units in Tamaki in the coming months,'  Thompson said.

It would be targeted at younger people and be close to transport and have good access to the CBD.

New Ground had an 'in principle agreement on the land' in Tamaki. 

Construction would start in 2020. These projects generally took about 18 months of planning, he said.

It was its largest 100 per cent build-to-rent development.

It's first had been 49 terraced houses and walk-up units leased for 10 years to the New Zealand Defence Force at Whenuapai, recently completed.

New Ground's other two developments are a mix of apartments and terraced houses for sale and long-term rent of three to seven years - one development in Hobsonville and the other in Queenstown.

In Queenstown the company was building 230 apartments - Toru Apartments at Remarkables Park - with 150 for sale and 80 for rent. The rentals were targeted at employers looking to accommodate staff. Construction had started.

At Hobsonville they were building 208 apartments and terraced houses, with most to be sold and 47 kept for long-term rental. Some were completed and others would be completed over the next months.

The 47 were scattered through the development so people could not tell what was a rental, Thompson said.

New Ground wanted to maintain the existing proportion of rentals to privately owned homes in Hobsonville so as not to alter the nature of community.

It had been financially backed in that development by the New Zealand Super Fund, a Government savings fund to help pay for superannuation, and Ngai Tahu, who had contributed most of the funding.

All up, it had about 500 apartments and terraced houses under construction and completed, including Whenuapai, of which about 25-30 per cent were for long-term rent, and the rest for sale.

It also had 300 in the project pipeline.

Pundits are tipping build-to-rent will gain traction in New Zealand this year as other companies follow New Ground's lead.

It requires big investors looking for stable returns from the rent to fund the buildings.

New Ground had talked at several conferences in Australia and been approached by large investment organisations in New Zealand asking how it made the projects financially work, Thompson said.

'There's certainly a lot of focus on it now and an awareness around build-to-rent. There's quite a number of different people thinking about it.' 

The company had been chipping away at the new model since 2014. Funding groups included iwi, wealthy families and individuals, and community trusts.

In Auckland, the average family's tenancy term was 13 to 14 months which was incredibly disruptive for the families and particularly for the children. Typically landlords only offered 12 month leases.

'Because we've got long-term, patient capital, institutional capital, we're able to offer very long-term leases.'

That meant 'we can't kick them out unless they breach the lease but they can get out at short notice if their circumstances change.'

Long term leases were common around the world but not in New Zealand.

'It's a crazy situation. Short lease tenure is one of the major problems with renting in New Zealand, that families can't make their rental house their homes.'

New Ground charged 'market rents'. 

'We haven't really done any publicity because we are slightly nervous of getting swamped and disappointing people.'

It saw a great opportunity for Kiwisaver schemes to invest in build-to-rent projects.

'Market values go up and down but what we aim to do is give people a good stable rental return and then some longer term capital gains probably, but it's not wholly reliant on those capital gains,' Thompson said.

In August last year a former Colliers International executive Tim Lichtenstein and partners announced they were setting up Haven Funds to raise $500m over five years for invest-to-rent apartments for a new generation of renters.

Lichtenstein told Stuff in the new year that the fund was not yet accepting deposits but had had a favourable response. Its aim was to raise $50m this year and $150m next year.

It was working with a range of developer partners 'and have significant acquisitions lined up over the next 12-24 months'.

In the short term it would focus on Auckland and would be investing in multi-unit housing, terraced houses, walk ups and semi-detached housing units in key residential locations where there was public transport links, schools, local employment and community amenities. 

Sharemarket-listed property company Augusta Capital has been investigating build-to-rent for some time.

Augusta chief operating officer Joel Lindsey said build-to-rent developments had lower returns but were considered stable, long-term investments.

Large overseas pension funds and big insurance groups were significant investors in them, Lindsay said.

It was hard to put a timing on any Augusta investment. All aspects had to line up like costs and location.

'We are looking at projects as we speak.'

Its projects would be purpose-built, long-term rental accommodation with a partner doing the construction. 

Auckland and Queenstown were the obvious markets where ownership of property was unaffordable for a lot of people, he said.