This episode was recorded on the land of the Wurundjeri people of the Kulin Nation. We pay our respects to their elders, past, present and future.
Richard: Hello and welcome to another episode of Precisely Property. I’m your host Richard Temlett. I’m excited to have you with us today. You have the first time. Thank you for joining us. I encourage you to listen to our previous episodes. We discuss all things property with a focus on dynamic discussions with industry leaders.
In this episode, we’ll be talking about the state of the PBSA (Purpose-Built Student Accommodation) and BTR (Built to Rent) markets in Australia with Anouk Darling of Scape. So sit back, relax, and let’s get started.
Anouk is the CEO of Scape Australia, the country’s largest Purpose-Built Student Accommodation platform. Under her leadership, Scape scaled to over $13 billion in assets and has over 19,000 apartments with a further 5,000 apartments in the pipeline while also expanding into Built to Rent. Recognised as CEO Magazine’s 2024 CEO of the Year, Anouk is known for her strategic vision and advocacy in housing policy and urban design. She has a powerful voice in the industry, serving as chair of the Student Accommodation Council. Anouk is also a sought after speaker and a mentor for women-led innovation. Welcome Anouk.
Anouk: Thank you for having me.
Richard: Anouk, in today’s episode, we’re going to talk about the state of the PBSA market as well as the BTR markets in Australia. I can’t wait to get into the session with you quite simply because when we were talking beforehand and when I was doing my research on Scape, who I certainly have tracked for a number of years now, I think you’re ideally placed to talk about what’s happening in both PBSA and BTR. You’ve got a number of projects and a number of apartments under management. I read a lot of the articles that you or your company puts out and I do find them very much at the forefront of what’s happening. And I’m keen to talk today about some of the things that are going right and things that are going wrong in the industry, just as an education piece, because both these sectors of the market, less so PBSA, but certainly BTR, does need to be further understood, especially with allowing finance and allowing capital to price the risk correctly so we can move forward. And again, you’re well placed to do that, given you’ve got that practical hands-on experience as it applies to Australia. So the session today, really, we’re going to talk a little bit about Scape. I’ve been really inspired by just watching the current growth plans and I can’t wait to talk a little bit about the future growth plans. We’re then going to jump into both PBSA and then into BTR and we’re going to talk about how it has been, both asset classes have been performing, what the outlook is. And also particularly, I want to talk to you about your views on what Government at whatever level, what they need to know, just to help this or both segments of the market, de-risk and just get further supply mobilised.
Before we get into the session though, I do have a icebreaker question, which is as follows. Your career journey to date has been anything but ordinary. If you had to describe your early career in a movie title, what would it be and why?
Anouk: Great icebreaker. I probably need two titles looking back because I have had a very long and varied career, as you’ve alluded to. What comes up first to me is Legally Blonde. I think about my early days um of being underestimated, filled in an industry with probably lots of unconscious bias. I can even remember being at Louis Vuitton as the Brand Manager at the age of 24 and holding a meeting with our big media partners. And of course, in those days, and this is in the nineties, they were all men and they walked in and there was a coffee cart, because of course we had everything beautifully set up. And they said, “Oh, hey love, I’ll have a black with one and John here will have milk and sugar”. And I was like, okay, of course. And made them their coffees and sat down and they sat there sort of twiddling their thumbs, arms crossed, legs leaning back in the chair. And they said, okay, well, you know, we’re here to meet the Brand Manager. And I said, yeah, I’m on time, let’s go. And much to their surprise, in fact, they nearly fell off their chairs. Yes, I was managing the whole media budget and I had all the decisions and they unfortunately didn’t have a contract that was renewed. But that was sort of the environment of being someone who was ambitious, wanting to make a difference and have impact. And like in Legally Blonde, I think I’ve always stayed authentic to myself. I’ve not changed. I’ve been who I am. Unapologetically, I think now At a much older age, I have more confidence about that, but I look back and I think, well, at least I’ve always been true to myself. And I did surprise people and I wasn’t just sort of the blonde tea lady. I actually ended up being, my first role as a Managing Director CEO was at 34 of a branding agency.
And that, that film title then probably moves more into Fear and Loathing in Las Vegas. I think about, if I think about those times, I was the ringmaster and it was a circus of creative ideas. But it was a fabulous journey and all my experience through luxury and retail sort of bled it up into that. And we won a lot of global clients and we expanded our offices into London and sorry, into Milan and to New York and lots of travel and big global clients. So it was fantastic. And then after that, I ended up taking a hiatus and sitting on boards as non-exec director. And then I fell into a board role that was run by a PE (Private Equity) company, Allegro, and they were like, gosh, you’re different. You’re thinking, you come at it from the customer, you’re digital, you’re tech, you’re very different to us. Would you like to do some things with us? And one of the first projects I got to work with them on was their acquisition of Great Southern Rail. And I think now it’s one of the most famous sort of stories in turnarounds with, you know, 25 times money in 18 months. So that was a very different world going from sort of retail background to, you know, running a big branding creative agency to ending up in PE. And I hadn’t had that experience for five years and I have a lot to be grateful for over that period.
And then now into my current career, I think the next title is Everest.
Richard: Right. I will just go back to your Legally Blonde title, which I think is hilarious. And what I wanted to pick up there is certainly I’ve heard you speak a number of times. You’re one of the best speakers that I’ve heard. And I also just want to give my audience a heads up. I do love how you speak in terms of being just brutally honest and authentic, as you said you were, because I can certainly attest to that. And as we were discussing offline, I’d like you to be just typically how you are when you give your views on particularly what needs to happen in the sector to improve it. And so I just wanted to give the listeners the heads up. I think that they, if they’ve not heard you speak, I think they’re going to thoroughly enjoy, how you articulate yourself and just some of the views that you have.
Let’s get into the first part of the show – in terms of Scape. Just for our listeners, if you’re able to just please provide just bit of a background as to who it is, why it was founded and then also where it’s going. Cause I think that’s what’s most exciting.
Anouk: Yeah, so Scape was founded by Craig Carracher and Stephen Gaitanos as business partners. And they’ve been working together since about 2011, I believe. Craig came out of the Packer environment. He ran Arctic Capital and looked after a lot of their mergers and acquisitions. And Stephen came out of investment banking, his last role prior to joining Craig was with Morgan Stanley. And they looked at the sector, well, not necessarily PBSA, but real estate and property, and they saw a gap and they saw an opening and they made a play. And it was a very brave play because PBSA in Australia is quite nascent, really. It’s sort of 20 years young, I would say, and comparative to, for instance, the UK and the US, Europe, it’s very much behind in terms of its longevity. But I would say fast forward, we’re actually ahead of in terms of what we deliver in the experience, having looked at global profiles. Anyway, the first properties were the Scape properties, and Scape has always been a disruptor and Stephen and Craig have really led that. So they saw a gap. They thought, why should students have less? Why should they have these awful environments that haven’t been purposefully created. And they rolled out the Scape brand and Scape was very different to anything in market. Everything was considered from the how small spaces could sing, how people use space, how to create collider zones and connection points for students. And so that was the start of the blueprint and that was in 2014. And it was with incredible capital partners. So the first capital partner was APG. The founders will even say, you know, it’s incredible that they jagged, you know, a big global property pension fund as a founding institutional capital. And when you play with giants, you attract other giants. BOW Invest was in there and then PIMCO, which is formerly Allianz and AXA came on board. And so what Scape started developing was joint ventures, which were developed to core platforms or funds. So JV1 was formed in 2014, JV2 came along 2016. And then in 2019, we’d set up the core program. And that was basically Scape had also scaled by acquiring some competitors. So first of all, the acquisition was a Atira rebranded to Scape. And then in 2019, we took over in 2020, timing’s everything, Urbanest, which at the time was the biggest competition in market and it was like the Mino swallowing the whale. I think, you know, we were sort of eight assets by, you know, 12 assets. So it was huge in terms of consumption. It was a $2 billion acquisition and no one had the crystal ball to know that around the corner was COVID. So obviously quite devastating. I joined in February the 6th of 2020. So Craig Carracher and I had worked together when he was at Arctic capital and I was running the big branding creative agency. And so our paths had crossed and we’d stayed in contact over the years. And I’d also joined for a short period on his, he’s also president of volleyball Australia and I had a board seat and he’d always kept me abreast of this thing. And he kept saying… well I’m kicking myself now, cause in those early days, “come and join me, I’m doing this thing”. And I’d be in a very different position if I had joined back when he said, but when he said I’m doing student accommodation, I was like, Oh My God, that sounds so unsexy. I’m so not doing that. And then we kept in touch and then he’d bring me up with ideas and he’d say, oh, Scapes so different. It’s brilliant. Our rooms are different. I’ve got this idea. I’m going to put a mattress and the room inside a van. I’m going to drive it to the University for O-Week. I’m going to show how different we are. And I’d be like that, no, you’re not selling a bed. You’re selling an experience. That’s just not going to cut it. It’s like, come and join. You’ve got to. I need you here. Come and join. Anyway. So February, 2020, if only I had have known what was around the corner. So that was the years we all know of the COVID pandemic.
Richard: Well, in terms of growth plans, in terms of obviously to the level that you’re able to share details, I have certainly tracked what you guys have been doing. And I remember those articles and it was amazing to me to hear that purchase back in 2020, late 2019, 2020. In terms of where you’re going now, obviously you’ve been in PBSA for a while. What are your plans in terms of the next five years, both in PBSA and also in BTR?
Anouk: Okay. So PBSA we’ve still got huge ambitions. We’ll be, we’re 20,000 apartments currently will be 25,000 with the next 24 months. There’s ambitions to be 50,000+ over the next five to 10 years.
Richard: Wow.
Anouk: Yes. And then BTR similarly, we want to be at the same scale. For us, it’s a scale play. And then of course, you know, cause borders are so 2019, we’re also looking in Asia. We’ve been looking in Japan, we’re looking in Europe. So there could also potentially be international expansion. And then the platform… and I probably didn’t explain earlier that, you know, while Scape has grown and turned to this sort of scaled operational platform, we also this year acquired Aveo, which was probably Australia’s largest, real estate transaction in history, actually.
Richard: Yes, I saw that.
Anouk: So we’ve got Purpose-Built Student Accommodation as one vertical. We have Built to Rent and we call it rent to live because I believe people, you know, it’s not about building something so people can rent it. It’s allowing people to rent so they can live a life that they want to live that’s fulfilled and renting shouldn’t hold them back from that. And then the retirement living pillar. And that came with a brilliant management team and is led by Tony Randello, he’s the CEO of Aveo and the retirement living sector. And when that happened, we also then rebranded because Scape is so synonymous with student. So The Living Company is our holding company and that has the three vertical pillars within it. And that will expand as well. I think, you know, there’s plenty of places we can move to land lease, to affordable, etc… And all of that has been considered.
Richard: That’s incredibly exciting, especially, I think that international flavour and I’ll just, as I said, I’ve been reading a number of the articles and even in preparation for this jumped on your website to see what was going on. And it’s just, you’re right, you’re playing with… I don’t remember if you said giants or whatever it is, but you absolutely are. And it’s, it’s fantastic.
Let’s jump into the next part of session, which is student accommodation or Purpose-Built Student Accommodation. I’m interested to know over the pandemic. I remember, especially as applied to students with borders being closed. There were a number of articles at that point coming out saying Australia and particularly Melbourne, which relies on tertiary education, that industry is fundamentally changed forever. It’s not coming back. And I remember doing work for PBSA providers where they were going, Oh My Goodness, the nature of development we’ve funded and we’re building these things out, but now the demand has been turned off overnight. What are we going to do? So I’m interested to know. What happened over that period of time in Australia?
Anouk: Yeah, it was a pretty dire time. And of course for many sectors, right. PBSA, not the only one. We weren’t an island by any means, but you know, when the ex-prime minister literally tells the international students to go home and locks our borders, that is our customer – telling our customer to leave. And I have to say the word I came to detest during that period. I can’t tell you how many conversations where people said, “Oh, just pivot”. I’m like, what? I don’t think I actually understand the physicality of the product that we build and how it’s designed. And it’s not something that is pivots into hotels, but by the way we did, we’re a very nimble organisation. You know, our founders, as I mentioned before, they’re very driven. It’s a high-performance culture and we did everything we could. We worked with Government. We supported first of all, obviously students in crisis. So we set up a whole crisis program where we were housing students. Who were suddenly stranded here and without jobs and really, really in need of support during that period. We worked with in Queensland, we worked with the Government Department of Housing. We supported people who were in very vulnerable boarding house environments and move them into one of our assets. That actually absolutely turned against us by all the people living in that area who were then very uncomfortable that we had people living below the poverty line, in their suburbs. So it was the worst form of NIMBYism (Not in my Backyard) where we were trying to be good citizens.
What we did develop then, and I was really excited to be part of this, was a Home for Good program that we still have now, which is our commitment every year to a number of thousand of scholarships or doing things for good. And we also worked with the Government and supported over 3,500 Afghani evacuees that were being pulled out of Kabul. And we mobilised our buildings in Melbourne of all places, which were interminably in lockdown in a very short period and really changed, I think, the lives and the soft landing for all these families that were just arriving in with nothing and in terror. And it was very good for morale. It was good for our teams. It was good to be able to do something and give back to communities. And the other thing we did do, obviously, was lean on our shareholders and thank Goodness for that trust that they had in us and our relationship. And it was really the shareholder loan that really helped void us through that period. Cause we were on our knees.
The other thing that happened, we did a lot of advocacy work with Government. We were trying to set up a pilot program. We were working very hard on trying to just get students back in. We were thinking of anything from, you know, via Bali or via Hong Kong and quarantine zones there and, you know, commissioning our own planes etc. And there was a, it was a dinner with the previous Prime Minister. It was in a private home in Sydney.
Richard: I enjoy this story.
Anouk: And it was, it was in July. So we were really, you know, it had been very, very, very difficult and so July 2021. And, know, we all thought the pandemic would be a year. So here we are a year and a half later and still no students, no borders being opened. And I remember thinking, no, the PM just doesn’t get this. He doesn’t understand what needs to happen. It’s not just impacting, not just from PBSA, but also, students who are in labour force and, for instance, Marivale Group, you know, relied on a lot of student labour that wanted to do jobs that not necessarily maybe our own children might want to do. And we were stopping the economy in so many ways. And even though the PM was saying, “Oh, isn’t it fantastic? You know, Sydney’s really open and Justin’s got his venues open X amount of days”. But the reality was Justin couldn’t actually do full covers and support because he didn’t have any labour. He just wasn’t getting it anyway. Off I went to this dinner, I think there was only about eight of us. And I remember my eldest daughter at the time, she said, um, so she’s late teenager. She said, “Mum, do not get drunk and do not be rude to the Prime Minister”. Now, I don’t know if any of you’ve got teenagers, but when they tell you what to do, it’s like, ah, no. Guess what happened? I don’t think I need to say too much more, but everything I did say came to the fore, including: May not have the support of the female vote, and you know, I don’t need to say anything. It’s all in history, but yes, that was a Government not really understanding the economy and the fabric of the economy and what maybe could have been done that would have supported us through that period. And when I say us, I say the wider collective, not just PBSA.
Richard: Look, I commend you for having, you know, being outspoken and you’ve obviously got a very good evidence-based and experience to come from. And because a lot of other people during that time, and especially in Melbourne, didn’t, I myself didn’t speak up enough. I’m glad that you did. And certainly I know parts of what you said to him and to be honest with you, I share your views on that. And it’s history now. And again, hindsight’s 20/20, but at the time, what you would have said or what you did say, I commend you for it.
In terms of, I was going to talk about the outlook for student accommodation, but I want to reverse the question and talk about what the Government needs to know to assist with student accommodation. And you did an article, I can’t remember when it came out, but was in The Urban Developer and you were just talking about generally your views on where student accommodation is going and we’ll get to that in a second. But you made a very good point that I don’t think a lot of the industry and particularly the policymakers really have picked up on and that’s with respect to tenancy legislation and how it captures student accommodation under the same brush or category as just residential accommodation. Let’s start there in terms of what does the Government actually need to know about this very important asset class?
Anouk: That is one of my favourite topics and an absolute bugbear. So just to paint some colour around this, student accommodation is purposely built to house students. We alleviate the pressure on the rental market. We know Australia has got some of the lowest vacancy rates at the moment. We all know about the housing crisis and the headlines. So here we are offering a sector, which by the way, this sector is Australia’s fourth largest export. It sits ahead of gold and tourism and only sits behind the extraction coal gas. So it’s so vital to our future as Australians and the fabric of Australia. We’re also the number one services export on its own. And yet we are operating in an environment where students, obviously there’s a semester. Or there’s a year, tenancy. RDAs prevent us from leasing to anyone else. So we only have students. Because we only look after students and typically because of where we see it and how we’re priced and where the main student cohorts come from. Some of them are under 18s and there’s a whole very strict program of how we look after them in terms of curfews, management, keeping the cohorts together and engaging. And because we’re purpose-built, we also then ensure that the students achieve their potential. So we run 2000 events a year. We work with 140 different nationalities. Everything is about this student cohort. We over-invest in looking after them, but we can only rent to students. And yet we’re broad brushed under the Tenancy Act. And I understand that’s there to protect the renters. That’s from renters, you know, mum and dads who might be just deciding to renovate and kicking people out or not doing the right things and fixing things on time etc. We are an institutional grade product. The universities also hold us to the highest account in terms of their student experience. But the Tenancy Act has swept us in this broad stroke fabric, which means that, and the most painful thing that came to light most recently outside of the break lease clause, which I’ll talk about, was any tenant has the right to have a pet. I mean, what the f*** are they actually thinking? Our students come in, most of them are international. They don’t stay. They live in studio apartments and yet everyone has the right to a pet. Now we had pet abandonment issues. We’d find pets wandering around in the common areas or even worse, students who don’t really understand how to look after a pet and then finding them in not great states. So thankfully we’ve just recently had a carve out, but it just shows you how little the Government understands the actual sector and what we do.
And now the break lease changes means that if a student is 50% through or 70%, depending on the state, 75% through their lease, they can break lease with one week’s notice. Now we can only rent to a student. A student only comes in either at the beginning of the semester. Either at the start of the year, so February, March, or mid-year for the second semester, or they stay the full year. Now, if they’re breaking their, if they’re through 50% 75% through their studies, which could take them to October, but their lease, say signed with us is till December, bearing in mind we don’t have, you know, the next year is not signed until January, they can break that lease in October. We don’t have any line of sight in terms of how we’re going to refill that room, because we don’t know, we can’t determine who’s going to break and who’s not going to break. So now there’s a huge gap being created in our economic capability of managing student cohort. And all we’re asking for is just reverting back to four weeks notice. Just so there’s some semblance of getting us through a leasing tendency period. Cause we can’t lease to a student that’s not there. We can’t go out to the open market and just fill a room. We can’t pivot and just do short stays for summer because students who do stay, we’re not permitted to mix with other cohorts. So it’s not, there’s no simple fixes around it. When I’ve met with, obviously because this is a state based legislation and it’s different in each state, but when I’ve met with the representatives, some of the ridiculous things they’ve suggested was, one in New South Wales was, we’ll just put your rents up. And I was absolutely flabbergasted. I was, you serious, like the cost of living is so high. Affordability is so difficult. We’re already carrying the burden and you want me to, and you condemn us for being a premium product and you want me to pass on that six week missing income to the student. So a much easier way around that is to just have a four week break of lease clause.
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Richard: What else does the Government need to know from your end? Is there, other than that, I knew that there was a topical issue. That’s why I’d obviously asked you, but what else to help, help the sector?
Anouk: So at least give PBSA parity to BTR. BTR at the moment is the darling of looking towards a housing solution. Now we haven’t got into, you know, why Scape’s evolved into BTR. So maybe you want me to take a step back?
Richard: Yes, that’d be great.
Anouk: So we have a platform capability, obviously deal sourcing, buying land, developing the land, building the product, operating. And that capability, which we sign 23,000 leases a year. So everything is for rent. Allows us to understand what people need within a living environment, within a living ecosystem. And I think the common thread, particularly across student and to residential and even to senior living is a sense of community and connectivity. And not only that, it’s the platform that sits behind it. It’s the technology, it’s the capability, it’s the systems, the tech investments we’ve made, the cadence we have. We can sign 2000 leases in a week. We also have a student pipeline that’s going to evolve out of student and move into the residential for rent market. And so we’ve got life cycle management. So we have the tech capability and we have a life cycle management. And yes, it’s a different cohort with different needs. And of course that means different amenity and it doesn’t mean all the pastoral care and all the wrapping and all the things that we put around the student environment, but a lot of it’s the same. In fact, it’s simpler and paired back. And right now, BTR is the darling of the industry, which obviously supportive and terrific, but it should be parity to PBSA because PBSA is actually at scale contributing to Australia’s economic environment. You know, $48 billion currently annually, whereas BTR is not at scale and it is not alleviating the pressure of the housing market to date.
So it’s very frustrating when you constantly hear, and even land tax in New South Wales, I think was 50% discounted and I’m hearing that it might even be removed altogether for BTR. You know, it’s not the case for PBSA. BTR has got the 15% MIT withholding tax. It’s also got the 4% capital works depreciation. You know, if only PBSA were given the same parity, it would be a much better place.
Richard: Yep.
Anouk: So Government, if you’re listening, PBSA is a solution. It is alleviating pressure on the housing market. It is contributing significantly to the Australian economy and yet it doesn’t have the same relief that BTR does. So if there was parity, I think that’s fair.
And the other thing that’s happening just in that landscape is BTR currently and those under operations are typically by Built to Sell operators. So they’ve come in, they’ve not had an operational platform necessarily. They’ve been developers and rather than selling now they’re operating, but a lot of their talent has come out of the PBSA sector. Now, if you pull talent out of the PBSA sector, where are they going to look? They’re going to look to the same channels. So now BTR is actually, you know, 40% to 50% filled with students.
Richard: Interesting. Okay. I knew that on certain buildings, but all right. Yep.
Anouk: And that is not helping actually the premise of BTR, which is allowing Australians housing access that is currently under supplied and yet they’re refilling it with students. But they’re refilling it with students, but they don’t have any of the same requirements around pastoral care and all the things that our sector is held accountable for, but yet they’ve got all the benefits of the tax.
Richard: Okay. Where do you think student accommodation is going? It’s, as you said, it’s 20 years old. I actually remember doing work a number of years ago now with as it was starting to emerge and finance was still trying to understand price of risk and where it was going. And I remember even back then people were doubting about how big it could be and whether it would really be a success. Obviously that has been resolved in the sense that it’s certainly a really good performing asset class. From what I can see, and when I look at the stats, where do you think it’s going? You’ve got your own growth plans, of course. Where is the sector going?
Anouk: Yeah, well, there’s still, you know, 140,000 under supply of student accommodation. And then if you look at Urbis’ latest reports, they’re talking about sort of a pipeline of only about 11,000 over the next sort of three years. I’ve told you about Scape’s ambitions. Obviously we can help accelerate that, but there’s still an under supply and in some states, you know, it’s six students per bed. So the macro environment in terms of supply demand is definitely there. And if you think about what drives it, it really drives the calibre of our educational institutions. And so we’ve got our group of eight universities, all globally ranked in the top 100. That puts them on the search criteria for international students. You look at where Australia is positioned, we’re seen as a very safe country. We’re on the Asia pack ring. So we’ve, we’re close to all of these Asian economies who want to, and lots of burgeoning middle classes who want to educate their students through international education and obviously great universities. So the demand is not going to slow down and thankfully this Government has actually really tried to determine a way to build consistent sustainable growth and lift the integrity of the type of student that is coming in. And for that, you know, we’re very grateful as a sector.
They’ve just increased the national planning levels to 295,000, which is like a 9% increase for 2026. And they are also encouraging universities if they wish to go beyond their allocations, then they need to demonstrate a supply of accommodation. Now that can either be new or newly nominated. And so for a sector, that’s an opportunity for us to work with universities and have underwritten agreements between universities where we can offer building, whole of buildings or number of beds. And that allows them to also increase their allocation. So it’s an exciting time and we are under supplied the demand is still there. All the thematics stack up, you know, as it sits when you, you know, sort of comparatively to BTR versus PBSA,PBSA is probably, you know, yielding sort of in the fives, whereas BTR is more sort of the fours. There’s probably a 50 to 100 BPS more premium in PBSA. So it’s a very certain asset class.
And I always think, you know, capital is agnostic. It will flow where it feels welcome. And, you know, I may have said this before on other panels and it’s intelligent. Capital can price in risk and it can make the right risk adjusted returns. But what it can’t price in is uncertainty. And when I look at Victoria and I’m sorry, because yes, I live in Sydney, but I was actually, went to school down here, was brought up here. So I’m saying down here, we’re in Melbourne. Grew up down here and went to school in university, Melbourne Uni down here. Honestly, I think I’d have more certainty playing blackjack than I would the roulette gamble of Victorian tax system. Particularly, know, absentee on a surcharge as it relates to land tax, the hikes that have gone up there. We’ve just produced a report from the Property Council with Mandala, which is available and published. And it actually shows the impact of capital flow into Victoria, which is very sad for a great state.
Richard: Absolutely.
Anouk: So I think the tax structures need to be set so they actually attract capital rather than deter it. Whereas somehow Victoria is doing a winning job at deterring capital.
Richard: It’s infuriating and it hurts a lot. I do work across all the states and it’s certainly when I present to the investors, that’s one of the… I couldn’t say it as well as you’ve said it in terms of it being agnostic and also chasing a return over a period of time, but that uncertainty is really just driving investment away. And it’s such a shame because the capital looks at Australia and it absolutely loves Australia. Sees all the fundamentals that you’ve described, but when it weighs up Melbourne, Sydney, Brisbane, even some of the other states, Perth, Adelaide, Canberra, it’s going elsewhere. And what’s really a shame is 10 years ago, it was actually the opposite in a number of sectors where Victoria actually attracted that capital and it’s an absolute disaster and I really try, Charter does a lot of work for the Government to just explain to them the devastating impacts. I’ve seen the reports that you’ve mentioned that the PCA put out. We’re also very close with Urbis and I know that Urbis have done similar things. I do really, really ask the Government to continue to actually really listen and start acting because I can’t help thinking that if they don’t, well, there’s a voting base that is getting more and more frustrated as cost of living and the housing crisis. keeps getting more and more pronounced. And so I do hope, sorry, I do believe that changes will be made. I just, it’s a matter of when that is. And the longer we wait, the longer it takes to actually implement, especially because of the nature of property development, how long it takes things to get delivered.
Let’s jump into Built to Rent. I’m interested to know your views and I’m specifically asking you this in terms of your Scape’s views on BTR, because certainly I’ve studied the market overseas and also speak with different people on the ground here. And they also have a view of BTR. But when we were preparing for this, you obviously said you’ve got a number of buildings and beds under management. You know the living sector and you’ve got really good experience on it. You’ve gone through different market cycles, different geographies. What is your view of BTR? What roles does it have to play or is it already playing in Australia?
Anouk: It’s playing a very subscale role at the moment. It’s so new to the Australian environment. And comparatively, you look at America and the rest of the world, Europe, Built to Rent is part of their DNA. It is absolutely crucial, I think, as affordability becomes a significant issue, particularly for the millennial generation, that we have access to fantastic housing supply that allows people to live, work and achieve their potential, just like we did for student. And the opportunity there, I think, for us and we’re really challenging ourselves is to democratise the rental market. So that’s not to come in at a premium to market. It’s actually to come in at market with something at great value and use our scale and our capability to lift our margins and our yield. What I’m seeing currently, is what I saw in the US, you know travelling and looking at their assets, which they call typically Multifamily in the US market. And a lot of them are bigger and more two and three bedroom, but there was a huge amenity war. And it got to the point where I look at some of these amenities and I think what’s the frequency, how is it using, how they price it in, how do people value it? You know, anything that you can imagine from children’s, you know, Cinderella castles to climbing walls, to their own roulette tables, to virtual golf, to full-size basketball, full-size tennis courts, full-size swimming pools, and a variety of each version plus wellness centres etc… I think unfortunately Australia went, Gosh, you’ve got to do all of this. Now the truth is when you build anything, there always has to be something special. And anyone that will tell you that has built their Built to Rent product, there’s always the aha moment and people will sign the lease. So they’ll see the pool and they’ll think, oh, this is so cool. And they may not ever get in the swimming pool or they’ll see the infrared saunas and talk about it, they wouldn’t cause it’s a brag factor, but they’ll never use it. So for us, it’s really understanding rather than over-amenitising. And I’m really not sure how their current stock is performing in terms of its yields and I’m not hearing pretty things at all. And also a lot of it’s filled with students, which just says that they need to understand the market. You need to understand who they’re solving for, where the market is. And, you know, of course some people are doing it very well. We’ve got 1200, over 1200 actually we’ve got close to 2000 assets in planning. We’ve obviously got our Marrickville Timberyards site.
Richard: Yes, I saw that. Congratulations. That’s an enormous one – enormous.
Anouk: Yeah, it’s 2.2 hectares. We’ll have sort of 1200 dwellings there, at least 100 will be affordable. And we’re really trying to disrupt and okay, whilst we’re in terms of our thinking and then in the planning and making something where the public can flow in and have an experience and give back some of this land that’s available on these timber yard sites, but also create great community and amenity for our members that is useful rather than wasteful. And I think that’s the difference. It’s really understanding amenity that’s of use and then highly valued as opposed to just wasteful because it’s just a brag factor.
Richard: Gotcha. And you’ll obviously be using your years of learnings from PBSA as to what, because I have those debates all the time. Do you put a swimming pool in? What’s the cost benefits? You’ve obviously got data that help you with those decisions. And you know, as you said, your target markets, you understand them.
Anouk: Absolutely. You know, terms of, I’m not going to speak in detail about, you know, swimming pool or no swimming pool. And we actually do have PBSA environments. We do have pools, which are in Queensland, which is the right place for them. Rather than indoor pools in Melbourne where the cost to fill heat etc… and then looking at your sustainability and your returns on that, it’s, you know, very difficult. So for us, there’s a couple of things. There’s our capability around the operating platform, which is the acquisition and the pipeline of the tenants and then the ongoing relationship management with the tenants to improve stickiness, create community and have ideally customer lifetime value that expands over periods of time rather than having to relet and relet. So that’s existing, that’s very easily scalable and transferable. The amenity is different because it’s a non-student cohort, but understanding and you’ve got to remember when we’re designing these buildings, we’ve to be thinking five or 10 years away. Because by the time you get through planning, get through construction, you get into leasing, you’re probably five years minimum out. Gosh, and depending on what state you’re in and the planning capabilities and roadblocks we have, it could be, you know, into some dystopian 10 year period. So ideally that’s not, ideally that’s not the case. And we see fast track planning for BTR. So the idea is we look to the future and we look at the customer of the future and we look at big shifts in behaviour and trends. And what does that mean? You know, looking at sort of this over consumption of technology and people needing and wanting the need to disconnect and unwind. So we talk about things like un-tech spaces where people can just actually disconnect from the world as an amenity space. And that’s very lo-fi, literally lo-fi. But it’s just a quiet space. And, you know, we imagine that people want more of that. We also imagine that people need to feel that their home starts at the curb, doesn’t start in their apartment. So therefore for their home starts at the curb, what should your home feel like when you walk through those front doors? And that’s how we think about the journey and the mapping. Cause for our students who live in small spaces in terms of their room, typically their home is the whole building. So we’re very good at understanding how to activate a whole building and ensure that people get out of their homes or their apartments to connect and do things that helps them thrive. Also, and behind that front door is obviously their very, their own space and their, and their private space. And when it comes to their apartment doors and all that, you know, ease of access and from everything from parcel delivery, how they’re consuming, how they’re ordering, what amenity they need, how does that flow? How do we make things easy in terms of if we’re designing unique spaces and we want to be able to offer a value product at 30 square meters, say in the BTR space or 33 square meters, what are we doing that allows for a new resident to understand how to use that space and make it highly functional. Because if people just plunk their own furniture in, it may not work. So we’re very good at designing things. So there’ll be lots of opportunities around rental packages and furniture packages and things to allow that space to work.
Richard: Very clever. Again, it may have been the same article, but it may have been a separate one. I can’t recall now. You were talking about it as it related actually to PBSA and you spoke about like your Wi-Fi free zones. And I thought that was very clever in terms of being able to disconnect. And you did, you made it very clear that it’s not just a Built to Rent apartment or student accommodation apartment. It’s the wider building that everyone will be living in. And I think that is very important in terms of understanding who the user is and what they value, what they’re prepared to pay for.
I did have a question as you were talking, in terms of BTR, what’s probably the biggest learning that you’ve had to date? For BTR in Australia, just with the learning curve that you’re on.
Anouk: Yeah. Definitely for us, it’s well, some of the things are how scalable our platform is and how we also have a whole lot of vertical businesses within our own environment. So partly cause we’re, I think one of our founders says, oh, you know, it’s because we’re control freaks. But it is true in a way, honestly, I’m just going to revert to the student main just for a moment. The students, once they’re behind their door, you know, that we can’t, it’s their own tendency. We don’t intrude at all. And therefore things like wellness and hygiene teams, which are our own in-house cleaning teams, they’re trained on mental health, first aid and awareness and they’re trained. So we know that when they’re out there in the corridors, they’re going to have the most interaction with the students. And so everyone within our environments is there for a purpose and it’s there to look after the tenant and the students. But those teams they’re also a vertical business for us. So when there’s painting, we’ve got our own painting crew, we’ve got our own facilities technicians. So we’ve already set up a scaled vertical business that allows us to create Ansell revenue opportunities. And I’ve not seen that across any other BTR environments. So that’s one thing.
The amenity war is the thing that, you know, is the key learning that we won’t be, we won’t be copying. As I said, we’re here to democratise the rental market and do something disruptive and different, but at great value. And for me, it’s absolutely about that really understanding, creating community and what that actually means to people. And you know, these are obviously Built to Rent as adults with their own space and their own decision-making. They don’t need any sort of pastoral care, but everyone wants to feel connected. And the people that stay is usually because the people that have relationships within the building, I made friends with the neighbours or made friends downstairs etc… So I think the other learning is transferring all of that capability we have in creating communities, which we do so well in the PBSA environment into the BTR environment.
Richard: What does Government for BTR need to be aware of? Again, no doubt there’s, I suppose they, in certain states, they perhaps are trying to do things to help the industry in my view, perhaps in my view not fast enough. Maybe they don’t understand the gravity of the housing crisis and the demand or the need for not just additional housing, but also actual rental housing. What, what in your experience or what does the Government need to know? What do they need to do to actually help this industry de-risk and start to scale?
Anouk: Yeah, well, like anything it comes down to, I think the planning particularly, we need to have fast tracked expedited planning. And of course, there’s none of it, none of it is possible without the capital. So then again, it’s actually the tax environment, the tax structures and the incentives that makes sense for capital and they should be long-term. They shouldn’t just be, you know, for 10 years or 20 years, they need to be in perpetuity. If we’re really going to get this commitment going. As I said earlier though, think BTR is already in a very solid state in terms of it’s got the eye of the Government, it’s got the support of the Government, the things that are happening, are happening quickly and proactively as opposed to when I look at PBSA, it’s been a slog and we’re still not at parity. The expedited planning. The tax frameworks and the incentives that support that are really, really important. And then you even look, you know, and then there’s challenges in different states and then even sort of productivity levels, particularly in the building of the buildings of the labour force, know, in Queensland, the productivity is so much lower than any other state. And obviously that’s impacted by the unions. And so there’s a, there’s a lot of things that could be done.
Richard: The final comment I’ll make is I was just wondering, do you think that perhaps BTR has had more of response from the Government because a lot of the occupiers of these dwellings ultimately vote, whereas the students don’t vote. I say that is because I’m always astounded, especially with the Victorian Government, calling it spade to spade, the additional taxes and charges that keep being imposed on foreigners because they can’t vote. They’re not worried about losing their vote, losing power. And I just, wonder if perhaps they’re going, well, students are students and they don’t vote. Whereas the occupiers of BTR, they don’t have enough housing, do we need to support it? Do you think that there’s something in that?
Anouk: Richard, you’ve absolutely hit the nail on the head. In fact, during the election, you know, if you think about the main headlines that we were seeing beforehand, housing crisis, international education and migration. And it was weaponized. It was actuall international students were weaponized. Quoters were put out there. You know, we heard about the student caps and at the time when the caps weren’t announced and I sit on a panel that reports into the Minister for Education and they were talking about, perhaps if we had a cap then everyone could plan towards it. And in my head when they were talking about it, was like, Oh My God, do not announce a cap because the opposition will f***ing halve it. And guess what happened? They announced the cap and guess what happened? The opposition halved it. Thankfully, and it’s absolutely true, the international students sadly were an easy scapegoat because they don’t vote. But thankfully what happened and I don’t know how far behind the opposition was in the election that they realised, because Dutton kept coming out with his rhetoric around this, it wasn’t picking up on the voters. Because you’ve got to remember Australia is made up with second and third generation immigrants. We are built on migration. They do want migration to continue to flow in. We do need international and of course international… hardly a very small percentage of international students stay, but there should be pathways where we’re missing labour to improve our own productivity that should stimulate and enhance the international students to come in and stay and become part of this incredible cultural diversity and fabric that Australia needs. But yeah, international students completely, I think so, I mean that’s just an opinion, there’s no proof of that, but you know, they were weaponized and they don’t vote, it’s easy.
Richard: Well, hope that, and certainly we do have a number of Government listeners and I do hope that they are listening because it’s also a critical segment of the market that just makes Australia such a diverse and multicultural country. And really, as you said, in terms of the impact it has on the economy and just really putting Australia in many respects on the map for lot of the industries and just driving opportunities. So I do think that the Government needs to, I suppose, stop being so short-sighted and think more holistically about how to resolve or properly tailor solutions to actually resolve some of these problems.
I know we’ve got through a lot today. Is there anything else just to close off the podcast you wanted to just raise either for our listeners to think about, whether that’s Government or the private sector or even capital to think about, kind of in your hands?
Anouk: Obviously, PBSA is a fantastic sector if we’re thinking about where to deploy capital. And that would be a message to all my friends out there with domestic capital. I have made a joke before around the last tourism ad with Lara Bingle and Where The Bloody Hell Are You? It would be terrific to see these Australian super funds, you know, getting into the PBSA sector, given the social impact it has, not just the economic impact. And at the moment there’s a very loud vacancy when it comes to domestic capital and particularly the super funds.
Richard: Great way to close this. I’ll close off for today. I hope everyone enjoyed the session and thank you so much for coming on.
Hi everyone. I hope that you enjoyed the session with myself and Anouk. I thought it was incredibly insightful. The three findings that I’d like everyone to just walk away from today’s session to think about are as follows.
Both PBSA, which is student accommodation and Built to Rent, in my mind, certainly need better and more clear definitions, whether that’s in planning, whether that’s in tax. It’ll help just with everyone being able to understand the asset class / classes and also help them both de-risk. It was very clear just listening to what Anouk was saying about Scape’s experiences with both these sectors. They are very separate and distinct and they certainly need definitions which will just help the industry move forward.
The second point to also keep in mind is that given that they are very distinct asset classes, they need different regulations that actually regulate these sectors and respond to the needs of the sectors. And Anouk’s comments about residential tenancy legislation and how that obviously cuts across or cuts into the student accommodation sector, I thought it was very well made. And again, I appreciate that some of these asset classes are emerging, but I think the Governments with the private sector does need to work a little bit harder in terms of actually getting solutions or regulations that are tailored to these asset classes.
The final point to make, which I thought was very well made by Anouk, and I’ve heard her speak a number of times and she does articulate it in a lot more detail, is when it comes to amenity, the concept between useful and wasteful amenity. She’s been very outspoken at some of the events in terms of being able to track what the occupiers of various apartments in various buildings use or don’t use. And her background really screams the fact that she’s able to know her target market or Scape know their target market and target their target market with useful amenity. And discussing these ideas with her offline, it became very clear to me that, that is certainly something that they do exceptionally well. And there’s an opportunity there for the industry to continue to learn from, obviously, and then tie it back to their distinct brands, either with the PBSA or BTR. I think that’s all I needed to really raise with you today. As I said, I do hope you found the session insightful. Have a good rest of the week.
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