Investors find ‘robust’ returns in new boarding houses

199 views 2021-10-20 13:35:00

A private investor has snapped up a fully furnished new generation boarding house at 12 Bank Street in Meadowbank in Sydney’s north-west for $10.5 million, amid growing demand for the asset class.

The sale of the 35 double-room studio apartment building is the latest in the string of deals in the sector that has seen rising interest from wealthy investors, owner operators and fund managers, according to Dylan McEvoy and Gordon McFadyen of JLL’s Capital Markets, who brokered the deal.

“Developers are also investing in boarding houses because of the low establishment costs and the ability to provide cash flow while they build other projects,” Mr McFadyen said.

“There is a new capital focus on NGBH as they are cheaper and quicker to build than a residential unit block, they can offer land tax concessions, going concerns generally transact on a 4 per cent to 5.5 per cent net yield, and it is possible to achieve scale in this sector to build a portfolio of assets.”

Defined as freehold blocks of studio apartments, NGBH is the simplest form of build-to-rent. Typically, up to 35 square metres, these apartments are largely offered on a furnished basis.

Mr McEvoy said they provide diversity to the housing market and a simple and quick rental solution to the tenant market, with typical lease terms available from three to 12 months.

“The typical return on investment compared to traditional residential is more robust, investors have control of the entire block of studios with a property manager managing the property,” he said.

Average rents vary depending on the location of the property, size of the rooms, the length of the lease and if they are furnished or unfurnished.

“NGBH assets have consistently performed during the past year and throughout pandemic uncertainty,” Mr McEvoy said.

“Excellent tenant appeal and retention is based on high-quality design, construction and the convenient accommodation solution it offers to the rental market.”

JLL has also sold 94-96 Croydon Street in Lakemba for $7.9 million, and the property at 187 Warringah Road, Beacon Hill is under contract, with price guidance of approximately $7 million.

Last year, JLL brokered four NGBHs at 8 Pembroke Street, Ashfield; 26 Buffalo Road, Gladesville; 35 Gower Street, Summer Hill; and 130 Frenchs Forrest Road, Frenchs Forest at a combined total of $30 million.

Each asset ranged from a yield of 4.13 per cent to 5.12 per cent and had an average capital value rate per room of $400,000.

To date, JLL has transacted over $85 million of boarding house assets, consisting of a combined total of 228 units that were 98 per cent leased.

“The deal pipeline is building, with a variety of going concern investments and DA approved NGBH sites across Sydney,” Mr McEvoy said.

This article is from Australian Financial Review, please click the following link for the original article:


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