Seniors Housing & Healthcare Trends

LOS ANGELES: One of the world’s most adventurous investors has decided on a tilt as the poisoned land lease sector.

Investment bank Macquarie has waded into the growing land lease sector, which provides affordable housing to downsizers over 50, giving global investors a route into Australia’s housing shortage through a portfolio of 5000 homes it plans to develop over the next five to seven years.

The $US1.9 billion ($2.9 billion) Macquarie Real Estate Partners fund has secured more than 2000 lots across eight projects in south-east Queensland and NSW, and in September, its new Millbray business kicked off construction at its first community in Flagstone, south of Brisbane.

The community, which will develop 293 homes across 12 hectares, was the first by a fund that, like listed funds management rivals Stockland and Mirvac, offered global investors a way to invest into Australia’s chronic housing shortage, Macquarie Asset Management’s Asia Pacific real estate head James Kemp said.

“The groups that are moving in now – Stockland, Mirvac, Macquarie – I think are trying to tap into that institutional demand for exposure to the sector,” Kemp told The Australian Financial Review.

“We’re only really touching a fraction of the addressable population. Land lease communities are touching less than 2 per cent of the over-55 population. So if you think about the ability to scale in that space, that’s already a big market and a growing market across the medium term.”

Offshore institutions are certainly keen to invest in Australia’s need for housing.

Stockland, which has separate partnerships with Japan’s Mitsubishi Estate and US-based Invesco Real Estate; Mirvac, which partnered with Pacific Equity Partners to buy an initial half stake in the Serenitas portfolio of 27 communities; and GemLife, which drew an equal mix of offshore and domestic institutions at its initial public offering in June, all show this.

Land lease is gaining popularity in Australia, as it offers older homeowners who may have little wealth beyond a family home they have owned for decades, a way to downsize and free up capital to live on.

Under the model, customers sell their suburban home and buy into a community, paying only for a dwelling and not the land on which it sits, leaving them with a sum of cash, often hundreds of thousands of dollars. They pay rent on the site, often aided by Commonwealth Rent Assistance.

The biggest growth in land lease is now coming from companies with offshore institutional capital.

The latest figures from Chadwick Property Valuers, a consultancy that tracks companies in the sector, show Stockland – which made its first foray into land lease in 2021 with the $620 million purchase of Queensland operator Halcyon – is now the single largest, with close to 14,000 units in operation, in development or in the pipeline.

The Millbray business is owned by the MREP fund.

In addition to the $200 million Flagstone community, the business – headed by former Ingenia Communities Queensland development director Matt Fedrick and former Hometown Australia acquisitions head Rob Cross – has an approved site at Highfields outside Toowoomba is in the process of securing approval for third site near Bargara, outside Bundaberg.

Fedrick is based in Brisbane, with the majority of the Millbray team, while Cross is Sydney-based.

“Queensland has been the initial focus of our strategy,” said Macquarie Asset Management managing director Justin Ayre, who has led the project.

“That reflects the maturity of the market there and sites that we’ve been able to access. But we expect NSW to be an increasing focus, and then we’ve got the ability to look at other states over time as well.”

The land lease sector had matured into a range of markets serving different niches, and Millbray would target a similar band of wealthier customers as rivals GemLife and Halcyon, Ayre said.

“The sector is certainly starting to separate into different strategies,” he said.

“We’d see ourselves playing towards the upper end of the market, but at the same time, being able to have a broad range of housing topologies and offers that does appeal to a broad range of over 50s.”

The Ashcroft community in Flagstone is located on a site carved out from Peet’s 126-hectare, $3.9 billion, Flagstone City development, allowing the ASX-listed developer – which is not in the land lease sector – to offer a wider variety of housing in its master-planned community as well as realise cash earlier than it otherwise would.

“You think about presales and where some of those master plans are, at the moment: us walking in and saying, we’ll take 10 or 20 hectares for land lease has the potential to improve the quality of their estate and provide a diversity of offering,” Kemp said.

“But what they’re seeing is probably most attractive is, subject to getting through some [approval processes] they can release cash from our acquisition at the site that helps their broader project.”