Arklife Makes $800m Expansion Play

With some big investment guns pointing towards Australia’s burgeoning build-to-rent sector, Brisbane-based operator Arklife has made a strategic move as it plots a national expansion.

It is putting its $800-million portfolio of projects on the block in a bid to partner with an institutional investor and secure seed capital for its next growth phase.

To sweeten the deal, it is also offering a stake of up to 50 per cent in its operating platform.

“We’re looking to roll out our model geographically around the country,” Arklife chairman Richard Carmont said. “And so we’re looking for a capital partner to achieve those ambitions.”

The move to scale the platform comes as major local and international investors increasingly position themselves in the sector, the growth of which is being accelerated by a housing supply shortage and record low rental vacancies.

Arklife was founded in 2018 by former Macquarie Bank and Grocon executive Scott Ponton with the backing of ADCO, one of Australia’s largest builder-developers, and other investors.

At the vanguard of the build-to-rent sector in Australia, it was among only a handful of early movers.

“That’s the point of difference with Arklife,” Carmont said. “We’re one of the pioneers in the industry in the sense that we’re one of the few groups to have developed and opened a purpose-built build-to-rent asset in Australia, which we have been successfully operating for the best part of 18 months now.”

According to a recently published report by Ernst & Young, there were 11 operating build-to-rent projects across the country as of February this year, nine of which were funded from foreign capital.

“Many groups are expressing interest in entering the sector, now that operating assets have been able to demonstrate operational capacity,” the report said. “There is now proof of concept in many states of Australia and at a range of scale and service offering.”

The emerging sector is currently estimated to be worth $16.87 billion but the report noted that was still only 0.2 per cent of the total value of Australia’s residential housing stocks.

With an additional 72 projects within the build-to-rent pipeline across Victoria, NSW, Queensland and WA, each with an average of 320 apartments, the research indicated “this value will continue to grow in the coming years”.

New tax laws—halving the federal government’s managed investment trust withholding tax for build-to-rent from 30 per cent to 15 per cent—in a bid to boost housing supply also are expected to bolster further growth in the sector.

▲ Arklife’s 31-storey, 327-apartment build-to-rent tower planned for 50 Constance Street in Brisbane’s Fortitude Valley.

“It's a very good thing for the industry,” Carmont said. “I think it’s something that has been holding some groups back and hopefully [the changes] will stimulate more demand from overseas investors and bring more capital into the market.”

He said despite strong demand from the rental market, the challenge ahead for the sector was in delivery due to soaring cost escalation and labour shortages in the embattled construction industry.

“The industry still has challenges in getting projects up … [but] we’re fairly unique in that Arklife is majority owned by ADCO, one of the largest construction companies in Australia, so we have a bit of an advantage on that delivery side of our assets.”

Indicative of the traction build-to-rent is gaining in the rental market, Arklife Robertson Lane in the James Street precinct of inner-city Brisbane’s Fortitude Valley achieved 100 per cent occupancy of its 89 apartments within six months of opening in October 2021.

Upon completion of its two other projects—the under-construction Arklife Cordelia in South Brisbane and yet-to-be approved Arklife Constance in Fortitude Valley—the platform will total 681 units and, once stabilised, will have an estimated value of $800 million.

CBRE has been engaged by Arklife to help Arklife secure an institutional investor to acquire its three build-to-rent projects and take a strategic stake in the operating platform to support the scaling of its model nationally.

The core markets of Sydney and Melbourne are in its immediate focus as well as additional projects in Brisbane.

Carmont said investors had already been circling since word of the offering got out to the market a few weeks ago.

“The platform provides the incoming group an immediate operating capability and real estate footprint,” he said. “Certainly, there’s people looking at it but there’s no advanced negotiations or anything like that. We’re still in the front end of the process.”