Novus wins $450m commitment from M&G Real Estate as build to rent fires

An artist’s impression of Novus on Sturt in Southbank, Melbourne.

British funds manager M&G Real Estate’s private assets and alternatives division is making its first foray into Australia’s build-to-rent market via a develop-to-core partnership with local specialist developer, owner and operator Novus.

In a major boost for the Aliro Group-backed manager, M&G’s Asia Property Fund will commit $450m to develop a portfolio of multi-family properties in some of Australia’s key cities with a focus on Melbourne and Sydney.

M&G’s investment will provide capital for the Novus Build-to-Rent Trust which is seeded with the 173-home residential scheme in Melbourne’s Arts Precinct, Novus on Sturt.

But this is only the beginning with the backing to elevate Novus to the forefront of an industry in which offshore giants are making inroads.

Novus was set up just last year as a joint venture between former Mirvac executives Adam Hirst and Jason Goldsworthy, and David Southon and Daniel Wise’s Aliro Group.

The ex-Mirvac pair bring many years of experience to their venture and Novus has emerged as an expanding developer, owner and operator of build-to-rent assets.

It is using a vertically integrated platform as it believes this is the best way to create and manage the specialist assets.

Novus chief executive Hirst says the M&G commitment – which could be leveraged up – will facilitate the roll out of the next 1000 apartments under the Novus banner.

“And it will continue to grow from there,” he says.

M&G’s investment will provide capital for the Novus Build-to-Rent Trust which is seeded with the 173-home residential scheme in Melbourne’s Arts Precinct, Novus on Sturt.

Novus is hoping to find the right balance for its renters. “We classify ourselves as attainable luxury,” Hirst says. The focus is on quality purpose built and designed complexes with full inclusions that provide tailored amenity, which is focused on the health and wellbeing side.

Novus is using a differentiated model at a time when some global players have entered the market using similar strategies for mega-complexes of 400-700 units

Hirst says a mid-scale model works better for customers and investors. “It allows you to go to more markets, very much targeted at that 150 to 300 apartments.”

The firm has national ambitions.

“Sydney and Melbourne are a focus, but other capital cities are part of the vehicle as well,” he says. “We’ve got a number of opportunities in various stages of due diligence that we’re working through at the moment, as we grow out the pipeline.”

Novus can target either brownfield or greenfield sites and is now working on a vacant lot in the western Sydney hub of Parramatta. “Its really about what we can do with it and develop on it,” he says.

Novus will pursue a develop-to-core model and will not buy completed product, but it is combating rising site prices. “You need to find those unique opportunities where you can solve a problem for a vendor and then result in a great product that works,” Hirst says.

The manager believes the maturing local sector will become well entrenched over the long term due to lifestyle changes, rising home prices and demand for high quality, purpose-built homes with service-focused managers.

Strong population growth over the past 15 years is also set to continue which, in addition to a structural under-supply of apartments, strong rental demand and affordability constraints, makes for a compelling opportunity for long-term investors.

“As a local specialist, we have a clear vision and value proposition for multi-family in Australia,” Hirst says, noting M&G Real Estate is an experienced global investor in the sector.

Novus and Aliro Group executive chairman David Southon said the pair would now “create and manage a high quality, Australian multi-family portfolio”.

“Together, we are well positioned to execute on our compelling pipeline of opportunities, adding to an excellent seed asset already in place,” he says.

The latest commitment from the M&G Asia Property Fund follows its recent $US424m ($563m) acquisition of a 30-asset residential multi-family portfolio in Japan.

The fund’s continued conviction in multi-family now takes its total commitment to the sector in the region to $US1.28bn.

M&G Asia Property Fund manager Richard van den Berg notes the group has invested in the sector across the region.

“Having been active in the multi-family market in Japan for many years, we are very pleased to be working with a partner of Novus’ calibre in Australia, where we already have significant exposure to other sectors,” van den Berg says.

“We look forward to building our capability and providing our investors with access to the resilient income stream that Australia’s residential real estate market offers.”