Merricks Capital, in partnership with NAB, is proud to provide construction finance to MONNO and Local Residential for a $350m Build-to-Rent tower in Melbourne. The 32-level development will deliver 391 apartments to one of Australia’s most undersupplied asset classes.
Build-to-Rent (BTR) is quickly maturing as an institutional sector, with banks and private credit working together to fund large-scale, high-quality residential projects. In our view, several factors make BTR more favourable from a financing perspective than the traditional Build-to-Sell (BTS) model:
- Build-to-Sell is increasingly crowded, with banks and credit funds competing aggressively on pricing, easing pre-sale requirements and offering covenant-lite structures.
- Build-to-Rent, while nascent domestically, is already core in the US, Europe and Japan where the model has taken share from BTS for nearly two decades (Cushman & Wakefield). We like that BTR typically delivers a higher-quality, homogenous product with lower maintenance costs, longer-duration income streams, and clear lender exits through asset sales or refinancing.
- Global equity is actively purchasing Australian BTR assets, with recent transaction evidence for stabilised projects in the 4.25–4.5% cap rate range.
- Domestic equity still requires a higher entry yield, closer to mid-4s to 5%, but we expect the rotation from office to BTR to continue. At a headline 6% cap rate, office assets often net only mid-4s once incentives are factored in.
- From an investment fundamentals perspective, we see BTR as attractive to long-term equity. Assuming ~4% annual capital appreciation, effective returns can potentially achieve ~8–9% per annum unlevered and 12–14% per annum with modest leverage. Relative to current blue-chip equities, this is compelling value: CBA trades on ~28x earnings for a 3.0% yield and Wesfarmers on ~35x for 2.6% (Bloomberg).
The drivers behind BTR as a scalable, yield-plus-growth opportunity are consistent with our hard asset lending strategy. We expect to continue to deploy into this sector while a capital funding gap exists, and over the next decade we see Build-to-Rent becoming one of the most important growth opportunities in Australian real assets.
In addition to the MONNO / Local Residential project, Merricks Capital is also funding Goldfields Group’s inaugural BTR development in Windsor, a 15-storey, $350m project that will add a further 348 apartments.
