PGGM and Sydney’s Apt.Residential Tie Up for $1B Aussie BTR Venture

With Australia’s rental housing market facing a surge in demand on the back of population growth and tight supply, Dutch pension giant PGGM is backing a A$1.5 billion ($1 billion) bet on the country’s burgeoning apartment market.

A property fund managed by Netherlands-based PGGM has formed a partnership with Sydney-based BTR investor, developer and operator Apt.Residential to build a portfolio of rental residential properties in Australia, with the pension investor having made a “substantial” initial commitment to the A$1.5 billion strategy.

“We are delighted to have formed a long-term partnership with Apt.Residential,” Ronald Bausch, PGGM’s senior director of Asia Pacific private real estate said in a joint release on Tuesday. “PGGM Private Real Estate focuses on forming strategic partnerships with experienced teams. Investments are well chosen in a sector where specific building and related location selection are paramount in generating attractive returns. Apt.Residential’s focus on delivering sustainable housing at a time when it’s clearly needed is very important for PGGM.”

The partnership, which will initially focus on the Sydney market, is being announced after investment in Australia’s multi-family sector nearly doubled last year to $2 billion in trades of income-earning assets, ranking the country second only to Japan among Asia Pacific rental housing markets.

2,500 Premium Units

The partners are preparing to confirm their first two projects, both of which are in Sydney, with one already under construction. The two developments are part of the partnership’s first phase, under which they aim to develop more than 2,500 units.

PGGM is investing in the open-ended partnership through PGGM Private Real Estate Fund, the pension investor’s global non-listed property investment vehicle, which managed €20 billion in global assets as of October. PGGM, which manages the pension programme for the Netherlands’ health and welfare sector, oversaw €245 billion of assets under management globally as of March.

“PGGM’s long-term commitment to Apt.Residential reflects their confidence in the experience of our people and our Sydney-centric business strategy and the future of build-to-rent residential real estate in Australia,” said Apt.Residential co-founder and managing director Matt Carolan. “We’re also aiming to deliver a positive contribution to Australia’s well documented housing shortage.”

The upcoming apartments, described by the partners as “premium grade,” will be managed and operated by Apt.Residential on a long-term basis upon completion. The partners are also incorporating sustainability elements into the properties’ design and operations, and are targeting to attain a 5-star certification under Australia’s Green Star regime for sustainable buildings, a 7+ star energy efficiency rating under the country’s Nationwide House Energy Rating Scheme (NatHERS), and net zero operations through 100 percent renewable energy.

Launched in 2022 by Carolan and five other co-founders, Apt.Residential aims to leverage the management team’s two-decades of investment, development, design and construction experience across the Australian, UK, and Southeast Asian living sectors. Carolan had previously served as head of development and chief investment officer for the Australian business of UK student accommodation provider Urbanest, which was acquired in 2020 by Scape, Australia’s largest student housing owner and operator, in a deal valued at over A$2 billion.

Investors Pile In

Australia’s BTR sector has been attracting institutional capital as population growth, rising home ownership costs, and growing acceptance of leased housing as a long-term solution continue to drive up rental demand. Australia saw net inbound migration of 518,000 people in the first half of 2023, more than double the figure for the same period in 2019, according to the Australian Bureau of Statistics.

The elevated housing demand has led to a surge in rents, with average asking rates for 2-bedroom apartments in Sydney and Melbourne having jumped 38.5 percent and 21.2 percent respectively from 2020 to 2023, according to JLL.

PGGM is the latest Dutch investor to bet on the Aussie rental housing sector, with compatriot pension manager APG Asset Management having teamed up with Canadian pension investor Ivanhoe Cambridge last month to form a A$1 billion student housing joint venture with Scape. APG, which along with Amsterdam-based real estate investment firm Bouwinvest was an early investor in Scape’s Australian business, teamed up with Bouwinvest again last year to form a A$1.5 billion BTR partnership with Scape’s principals.

Last month, a real estate affiliate of Japan’s Sumitomo Corporation formed a A$1.2 billion joint venture with Brisbane property firm Cedar Pacific to develop rental housing in Australia. That venture came two months after Local Residential, the Australian build-to-rent platform backed by Macquarie Asset Management, reached a final closing for its inaugural fund, which received committed capital from a large North American pension fund.